Panama Opens Its Doors To Captive Formation Insurance/Reinsurance Companies

Panama enacted legislation in 1996 to allow the formation of captive insurance/reinsurance companies in its territory, one of the first Spanish speaking domiciles to do so.

It comes at an exciting time for the Latin American region with the ongoing privatization of government-operated telecommunications, energy and transportation industries and an insurance field in which only Brazil, in the reinsurance arena, and Costa Rica and Nicaragua in direct insurance, have state owned monopolies.

Panama, with an international banking system playing host to over one hundred banks, holds the US dollar as legal tender and enjoys the trade and economic activity of the Colon Free Zone Trade Area, one of the largest of its kind in the world. The country also enjoys a strategic geographical location for world commerce, centered along the Panama Canal, and a multilingual professional environment.

With the international business community eyeing Latin America as the untapped market for new opportunities, corporations are establishing branches and/or regional operational hubs in the area and developing alternative risk transfer/retention options, including captive formations.

With no taxes on premiums, capital gains or profits, captives incorporated in Panama will benefit from the non-existence of double taxation treaties with other countries. A minimum of thirty five percent of reserves must be invested in locally authorized instruments.

A solvency requirement of a five to one ratio between net premiums and capital must be met when presenting audited financials every year. An insurance/reinsurance risk report of operations must also be presented.

Presently, there are three authorized and licensed captive management companies in Panama, with a further four seeking authorization.