WHAT IS THE INTERNATIONAL INSURANCE CENTER OF PUERTO RICO


Since 2005, the International Insurers and Reinsurers Division of the Office or the International Insurance Center (IIC) of the Office of the Commissioner of Insurance of Puerto Rico (OCI), has sought Puerto Rico as an important member of the international insurance arena. Due to the many advantages of this jurisdiction, Puerto Rico is a logical portal for insurers and reinsurers wishing to enter into the Latin American insurance and financial industries, with direct access to the United States and other international markets.

The Government of Puerto Rico adopted this new initiative and incorporated it as part of economic agenda for the 21st Century. The International Insurers and Reinsurers Division is under the Supervision of the OCI. The Department of Economic Development and Commerce oversee the promotion of this facility and the extension of tax decrees, herein explained.

The experience offered by other jurisdictions close to Puerto Rico, has demonstrated that the development of international business centers, such as offshore venues, have provided viable opportunities for efficient and effective economic growth for countries and economies in search of these goals.

Why Puerto Rico?

Puerto Rico enjoys a privileged geographical location, offering easy access to the United States and Latin America. The advantages of a fully bilingual (Spanish and English) corporate culture have helped the Government of Puerto Rico in attracting and retaining high technology, capital intensive manufacturers for specialized industries.

Puerto Rico has dedicated billions of dollars to its local infrastructure, which features state of the art communication and technological systems, as well as modern transportation and shipping facilities. It is to be expected then, that Puerto Rico’s service sector has become one of its fastest growing industries.

Under the US flag, Puerto Rico’s free market economy is subject to both federal and state regulations designed to protect free market competition specifically within, but not limited to, the insurance and banking industries. Along with the use of US currency, the dollar, and general allowance of free flow of funds abroad, this regulatory structure guarantees sound credit and investment practices. Legal protection is provided under both federal and state constitutions, with legal redress available in federal or State courts.

Puerto Rico’s economy enjoys both fiscal and tax autonomy with respect of United States Tax Code, with special distinctions made in several areas.

INSURANCE ARENA

The Office of the Commissioner of Insurance’s (OCI) long history of regulatory expertise is further reason for Puerto Rico to be considered a viable alternative to transact insurance business. Puerto Rico is an accredited member of the National Association of Insurance Commissioners (“NAIC”) since 2012. The regulatory basis of the Center, in fact, calls for prudent but more expedient based regulation. In addition, the OCI is also participating member of the Association of Insurance Superintendents of Latin America (“ASSAL”).

The OCI regulates 50 domestic insurers and 358 foreign insurers with a premium volume that reached $10.5 billion for 2013.  These risk takers are served by over 10,000 intermediaries and twelve thousand employees.  Health and Disability, with a 72% share, is the traditional dominant sector being subsidized by Federal and State government.  In 2013, after years of self-adjusting to a rapidly changing global insurance arena, the international insurance sector proved to be a strong growth driver for the island’s insurance industry.  Following an average growth of 38% in Gross Written Premium in five years, with over 100 regulated entities doing business in a myriad of operating plans, Puerto Rico’s international insurance sector is positioned to be center of attention for internal investment and a spark of innovation to our domestic human capital.

LEGAL BACKGROUND

Laws No. 399 and 400 of September 22, 2004, in Chapter 61 of the Puerto Rico Insurance Code were adopted jointly with Rules 80, 81 and 82 of the Regulation of the Insurance Code, in order to establish the legal framework for the International Insurance Center (IIC). This legislation provides a competitive environment within which insurance companies and reinsurers could cover risks outside of Puerto Rico, under a secure and flexible regulatory scheme, which includes attractive tax benefits.

Law No. 98 of June 20, 2011 was passed to provide long term tax status that will guarantee the tax treatment for an initial period of 15 years, renewable for two additional 15 years periods.

Rule 100 of September 23, 2013 established guidelines and additional requirements that are applicable to international insurers who intend to assume or accept reinsurance on risks resident, located or to be executed in Puerto Rico.

Law 39 of March 18, 2014 was enacted to set the guidelines for the assumption of domestic risk, regulate third party risks assumption by captives and facilitate the organization of insurance linked securities programs.

PROVISIONS AND STRUCTURE OF THE LAW

International insurance entities have various alternative ways to organize and operate within the IIC.  These options include:

 Holding Company

  • International Insurers Holding Company is a Puerto Rico corporation that holds interest in an International Insurer or another International Insurer holding company.
  • May control international insurers or other international insurer holding companies, or business that are incidental and that provide services exclusively to international insurers with which they maintain relationship as subsidiaries or affiliates.
  • Maintains its cash, equivalents and other investments in a proportion of no more of 1:1 with other insurance related assets, including interest in the international insurer.


International Insurer

  • An entity organized to conduct insurance business outside Puerto Rico.
  • Includes reinsurers, captives, and associates captive company structures.


Branch of Foreign Insurer

  • Maintains a main office in Puerto Rico.
  • Segregates assets under a trust constituted pursuant to the laws of the Government of Puerto Rico.
  • The deed of trust and all its amendment made according to the manner established by the Commissioner of Insurance.
  • Have assets in trust in an amount at least equal to 150% of the capital and surplus required by type of licenses, except in the case of Class 4 insurer which will be 110%.


Protected Cell

  • With prior approval from the Commissioner, an international insurer with class authority 2, 3, 4, 5 or 6 may establish and operate one or more segregated asset plans.
  • Assets of a Segregated Assets Plan approved by the Commissioner are available solely for the payment of obligations specifically identified in the corresponding operation plan and not available for the payment of the obligations of other segregated assets plans or for the general obligations of the insurer.
  • No Segregated Assets Plan shall be considered as an entity with a jurisdictional personality separate from that of the international insurer.


The IIC is a platform for the following business opportunities, among others:

  • Alternative Risk Management strategies as Captive or Associated Captives Insurers
  • Insurers or Reinsurers vehicle to enter Latin America or US Markets
  • Special Purpose Vehicles
  • Vehicle for Integrated Insurance Plans
  • Corporate reorganization using International Insurers Holding Companies
  • Segregated Assets Plans to serve High Net Worth Individual market
  • Securitization  Programs


TAX TREATMENT

  • $1.2 million tax exemption on Net Income. Exemption applicable at the individual cell level for Protected Cell Company arrangements and at the company level. Preferred 4 % tax rate on Net Income (not applicable to Holding Company), guaranteed by a decree effective over a period of 15 years, renewable for two additional periods.
  • Tax treatment guarantee by a 15 year tax decree, renewable for two additional 15 years periods.
  • Exemption from Premium Taxes.
  • Exemption on dividends and other profit distributions made by the International Insurer and International Insurer Holding Company.
  • Exemption on municipal franchise and real and personal property taxes.
  • Exemption to the International Insurer and qualifying International Insurer Holding Company from withholding taxes on payments of dividends and other profit distributions made to third parties.
  • Isolation of the proceeds and benefits paid by International Insurers from state and donation taxation procedures.

 

OTHER LAWS OF INTEREST FOR CHOOSE PUERTO RICO

In addition to the tax exemption under the International Insurers and Reinsurers Act of Puerto Rico, companies seeking to move insurance operations to Puerto Rico can also benefit from the island’s larger set of economic incentives.  The Department of Economic Development and Commerce and the Office of the Commissioner of Financial Institutions has the following laws:

 

  • Law 20 of January 17, 2012 (Incentive to Exportation of Services):  Offers several tax incentives, including 4% flat rate, for a variety of services provided from Puerto Rico to clients off the island, including capital investment services, software development, data processing centers, among other service industries.
  • Law 22 of January 17, 2012 (Incentives to Individuals Investors): Offers tax benefits to new residents of Puerto Rico (must be present in Puerto Rico at least 183 days amongst other residency requirements).  Under Act 22, interest, dividends and capital gains could be totally exempt from Puerto Rico income taxes in Puerto Rico.

The Office of the Commissioner of Financial Institutions has the following law:

  • Law 273 September 25, 2012 (Financial Investment Center): Offers tax exemptions to a wide range of traditional banking activities for clients outside of Puerto Rico, including trust services, refinancing, underwriting, managing high-risk funds, lending and clearinghouse services and other financial services.



GENERAL INFORMATION

International Insurers and Reinsurers are subject to an Annual contribution based on premium level:

 

Annual Premium

(No greater than)

Annual

Contribution

$

25,000,000

5,000

50,000,000

10,000

75,000,000

20,000

100,000,000

35,000

150,000,000

50,000

250,000,000

65,000

>250,000,000

75,000

 

 

CLASS AUTHORIZATION LICENSING BASIS FOR INTERNATIONAL INSURERS AND REINSURERS

 

 

Type of License Description of Authority Capital Requirements Fees & Charges
       
CLASS 1 AUTHORITY
“Pure Captives”
Authority to transact insurance and reinsurance related to risks from the sole owner of the international insurer, any affiliated owner or other affiliate of the international insurer.

$500,000 Capital and Surplus with a minimum capital of $500,000

5:1 Premium to Surplus Ratio

$350 general application fee

$700 application fee for Class 1

CLASS 2 AUTHORITY
“ASSOCIATION Captives”

Risks of the owners, whether or not said owners are affiliated, risks of the international insurer or of any of their respective affiliates
Risks that arise from the business transactions of said owners of affiliates, as may be determined by the commissioner, or
Any other risk that does not exceed the total of 20% of the net premiums written by the international insurer

$750,000 Capital & Surplus with a minimum capital of $500,000

5:1 Premium to surplus ratio

3:1 Premium to surplus ratio regarding third party risk

$350 general application fee

$1,000 application fee for Class 2

CLASS 3 AUTHORITY
“PROPERTY & CASUALTY”
Authority to transact Property & Casualty insurance for foreign risk, excluding High Limits Casualty & Property insurance

$1,500,000 Capital & Surplus with a minimum capital of $500,000

3:1 Premium to surplus ratio

$350 general application fee

$2,500 application fee for Class 3

CLASS 4 AUTHORITY
“UNRESTRICTED
PROPERTY & CASUALTY”
Authority to transact Property & Casualty insurance for foreign risk, including High Limits Casualty & Property insurance

$100,000,000 Capital & Surplus with a minimum capital of $2,000,000

2:1 Premium to surplus ratio

$350 general application fee

$25,000 application fee for Class 4

CLASS 5 AUTHORITY
“UNRESTRICTED LIFE &
DISABILITY”
Authority to transact Life & disability insurance for foreign risks

$750,000 Capital & Surplus with a minimum capital of $750,000

4:1 Premium to surplus ratio

$350 general application fee

$750 application fee for Class 5

CLASS 6 AUTHORITY
“RISK SECURITIZATION
PROGRAM”
Unrestricted Life & Disability or Property & Casualty third party risks No capital requirement $350 general application fee

$25,000 application fee for Class 6

Classes 3, 4 and 5: Reinsurance of domestic risks permitted under Regulation

 

Contact Information

 

Rubén Gely-Rodríguez, CPCU, AAI, ARM

Director of the International Insurers and Reinsurers Division

This email address is being protected from spambots. You need JavaScript enabled to view it.

787-304-1300

 

Glory Mar Montalvo Pagán, MBA, APIR, ARM

Executive Aide

International Insurers and Reinsurers Division

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787-304-8686 Ext 3000

 

Office of the Commissioner of Insurance of Puerto Rico

B5 C/Tabonuco Suite 216

PMB 356

Guaynabo, PR 00968-3029

787-304-1000

www.ocs.gobierno.pr