A policyholder protection scheme and a financial services ombudsman are two of the advantages of buying life products from providers based on the island
The advantages of investing in tax-efficient offshore wrappers are well known and regularly feature in the advice process. Any adviser seeking to recommend an offshore investment to a client will need to consider the merits of the various offshore jurisdictions. Criteria such as financial strength, regulation and experience will no doubt feature on any checklist.
With more than 25 years' experience as an offshore financial centre, the Isle of Man has developed one of the largest and best respected bases supporting the offshore activities of insurance companies, banks and building societies, the parent companies of many being household names in the UK. Such is the financial strength of the Isle of Man, Standard & Poor's has awarded it a rating of AAA, the highest achievable rating for a financial centre.
Situated in the heart of the British Isles, the Isle of Man is an internally self-governing dependent territory of the British Crown. It is not part of the United Kingdom (but is a member of the British Commonwealth) and has a unique constitutional relationship with the UK which means it can elect its own Government, make its own laws, levy its own taxes and control its own expenditure.
The island enjoys complete independence from the UK on matters of direct taxation. There is low corporate and personal tax, and no capital transfer or inheritance tax exists.
Regulation of insurance business carried out by companies in or from the Isle of Man is the responsibility of the Insurance and Pensions Authority (IPA). Insurance companies have to be authorised under the Insurance Act 1986 (as amended) and regulations made under the act require companies to adhere to detailed supervisory reporting requirements, similar to those imposed on their UK-based counterparts.
The act requires the senior management and all controlling parties of insurance businesses to be fit and proper and for the companies to be financially sound.
In addition to the IPA, which regulates the insurance industry, the Financial Supervision Commission (FSC) is responsible for the licensing and supervision of banks, building societies, investment business, collective investment schemes and corporate service providers in the Isle of Man. Established in 1983, the FSC's objective is to ensure the effective supervision of the private financial and commercial sector in the island. Together, the IPA and the FSC strive to maintain the Isle of Man's reputation for integrity and compliance with international standards of supervision and regulation.
In common with the UK, the Isle of Man is fully committed to adhering to international best practice in anti-money laundering and the countering of terrorist financing. The Island has applied the "know your customer" principle since 1985 and has strict rules in place to ensure that customers' details are thoroughly checked before money is accepted by any authorised insurance company. It might seem to advisers that the Isle of Man's anti-money laundering regulations are quite onerous, but they are essential for the protection of all the island's financial businesses.
Not all offshore jurisdictions provide compensation schemes for investors, but the Isle of Man's policyholders are covered by the Isle of Man's Life Assurance (Compensation of Policyholders) Regulations 1991 and this ensures that, in the event of a life assurance company being unable to meet its liabilities to its policyholders, up to 90% of the liability to the protected policyholder will be met.
The scheme is funded by a levy on all life insurance companies operating on the island. And, unlike some policyholder protection schemes, the island's scheme operates globally, providing protection to policyholders no matter where they reside.
The Financial Services Ombudsman
The Isle of Man has a Financial Services Ombudsman scheme that investors can turn to if they are unable to resolve their complaints. This service is free and is available to consumers of Isle of Man regulated businesses from around the world in the areas of investment, insurance, banking and pensions.
Strength in numbers
The Isle of Man-based insurance companies have a strong reputation for working together for their mutual benefit. Most of the international life companies based in the Isle of Man are members of the Association of International Life Offices (Ailo).
Ailo is a unique trade organisation comprising companies that market products internationally and cross border. Member companies offer multi-currency, tax-efficient products aimed at the international investor and medium to high-net-worth clients whose needs cannot be fully met by domestic providers.
The association aims to promote the cross-border life industry and to encourage professionalism and high standards among its members through the provision of market, regulatory and taxation information. Member companies benefit from sharing and discussing topics of common interest. The website www.ailo.org provides useful information to advisers, including a client-facing brochure about investing offshore and tax briefs that explain the taxation regimes of various countries.
Another organisation that exists to support members of the island's insurance sector is the Manx Insurance Association (MIA). The main objectives of the MIA are to raise the profile of the industry and to work closely with the Isle of Man Government, in particular the IPA, to promote change that will benefit the industry. It also seeks to provide a collective view on matters affecting the industry.
The MIA was instrumental in establishing a voluntary Policyholders' Protection Scheme on the Island before the introduction of formal legislation in 1991. The MIA's website can be found at www.mia.org.im.
With its many years of experience in the international financial services sector, the Isle of Man has strong qualifications in the field-of-life assurance. Its highly trained workforce with experience of all aspects of the international life insurance market and its products and administration requirements make it responsive to the needs of this expanding market and able to provide the high levels of service demanded.
This wealth of experience has helped the Isle of Man to be consistently voted by financial advisers as the Best Offshore Financial Centre, an award it has won for five years running in the International Investment annual industry awards.
The island is also a leading centre for company and trust formation and administration, through which a variety of international company structures can be set up. Many leading legal and accounting firms are represented to help provide a world-class offshore environment. (See table below)
2004 - Life sector growth
The improved investment market conditions and increased consumer confidence are reflected in a strong increase in gross premium income for the year. Premiums for the year to 31 December 2004 stood at £3.99bn, an increase of £0.86bn over the previous year.
It was encouraging to note a reversal of the downward trend in premiums that had been observed in the previous two years. The split of premium income showed that single premium contracts continued to dominate, accounting for 85.1% of gross premiums written (2003: 81.0%).
Funds under management remained strong, with an increase from £17.22bn at the end of the previous year to £19.25bn as at the end of 2004. This represented an annual increase of 12.2%.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
Senior Managers Regime
Interest rate outlook unchaged
FCA made demands last week