The Botswana International Finance Service Center (IFSC) upped the scales Thursday as it launched the international insurance sector aimed at attracting the legions of re-insurance and captive insurance companies into the country.
The move follows the passing of the international insurance regulation early this year with the view of laying out the book rule for the sophisticated onshore and offshore insurance business from Gaborone.
Speaking at the launch, Finance and Development Minister, Baledzi Gaolathe, said the ‘regulatory frame-work” strategically positions Botswana alongside other international financial services centers like Bermuda and Dublin, Ireland, which offer international insurance companies to render services to non resident companies and individuals in hard currencies.
“This legislation will enable and facilitate the carrying out of a wide range of cross border insurance activities such as re-insurance, insurance brokerage and captive insurance operations,” he said.
Reinsurance companies are insurance companies that insure ordinary insurance companies and they normally get exposed to claims when something as big as the September 11 attacks on New York and Washington happens. Some of the companies involved in reinsurance are Swiss Re, Zurich Re, Munich Reinsurance Company and AON Optimum Reinsurance.
And international insurance brokers will include the likes of Marsh, which is the world’s leader in that category. While captive insurance started in the 1920s as insurance companies taking care of their parent companies, nowadays it is quite diverse. The aim of the captive insurance companies is to dodge high premiums which are paid to the ordinary insurance companies.
Companies that will be accredited to the IFSC will benefit from a concessionary tax rate which is set at 15 percent against 25 percent under the companies’ Act. They will also be exempted from withholding tax and the capital gains tax.
Gaolathe said the coming of the international insurance regulation will sufficiently “address prudential and supervisory concerns” of offshore insurance activities, in order to protect the integrity of the registered insurance businesses and that of the host jurisdiction.
“This frame-work legislation will at the same time provide the operational flexibility required for Botswana to build her competitiveness as an international insurance domicile,” he said.
Some of the measures that need to be put in place to make the regulatory frame-work effective will include the establishment of the non-banking financial Institutions Regulatory AuthorityÔÇöan equivalent Financial Services Authority in the United Kingdom.
Botswana has a high standing in the eyes of the international financial community for having removed the exchange controls and having the highest credit rating in Africa, equivalent to those of southern European countries. Further, it is being credited for its political stability and the rule of law. However, Botswana still has a difficult task ahead of Africa being painted with the same brash of corruption and civil unrest.
Further, for Botswana IFSC to benefit from new legislation, the government needs to step-up initiatives of formalizing double taxation treaties with a number of countries. At the moment the initiative is unattractive because the Government Enclave seems to be stalling in as far as the signing of double taxation is concerned – at least with the regional member states of SADC.