Guam’s captive insurance law has been in the books for 24 years but that industry hasn’t thrived locally the way the Federated States of Micronesia has been able to develop it.
What’s interesting is the FSM government, for the most part, copied Guam’s law, according to Christine Baleto, chairwoman of the Guam Chamber of Commerce.
While Guam currently has no captive insurance industry, according to a 2020 report, FSM's has “generated more than $600 million in reinsurance premium collection.”
Guam’s captive insurance is linked to the qualifying certificate program - in order for a company to create a captive insurance business, it also needs a qualifying certificate.
And that process of getting a QC has been called cumbersome and time-consuming as the Legislature has added to the list of requirements. Guam businessman Pete Sgro, who worked to bring investors to Guam a private hospital, now called Guam Regional Medical City, said the process can take up to more than a year.
Guam Chamber of Commerce board Chairwoman Christine Baleto said as the island’s elected officials look toward invigorating Guam’s depressed economy, the process for a qualifying certificate has to be a focus.
Qualifying certificates are used in Guam and other jurisdictions to attract and encourage investment by offering a tax break, Baleto said.
Instead of coming to Guam, she said, investors are going to the FSM or Hawaii.
Baleto said if Guam has a captive insurance industry it would likely stimulate other areas of the island's economy, similar to the FSM and Hawaii's.
$23 million in economic benefits to Hawaii
According to FSM’s latest report, the “captive insurance continues to dominate the FSM insurance market in terms of the number of domestically licensed insurers, volume of insurance business, and contributions to the FSM's local economy.”
“Based on available and reported data, in 2019, the captive insurance sector generated more than $600 million in reinsurance premium collection,” the FSM report states, in part.
In Hawaii, commerce officials reported that "captive insurers wrote more than $6.22 billion in premium volume, invested nearly $1 billion in assets through Hawaii financial institutions and generated approximately $23 million in economic benefits to Hawaii through various taxes and fees, professional services, annual conferences and visitor industry business."
“Where you generate income is the residual business,” she explained. “So you give the captive a tax break on GRT, which is 4%, and then they generate income through jobs, through investments in financial institutions, in contracting with our auditing firms, accounting firms and all the residual services.
“And then, like what FSM does, you require an annual board meeting, their board of directors flies out, they bring their families. And they don’t just stay for a couple of days for a meeting, they’re likely to stay the week shopping and being in our hotels, eating at our restaurants — that’s where economic activity is generated.”
For Baleto and the Chamber, speeding up the QC process is just one aspect of reviving Guam’s economy.
Last year, the Chamber held discussions on how they could develop economic opportunities in the short and long term. Members noted that Guam needs to diversify its economy and cannot continue to rely on tourism and military spending alone.
As part of the discussion, the Chamber explored the following possible sources of economic activity:
• Alternative dispute resolution;
• Guam captive insurance;
• A trust incentives program;
• Encouraging the relocation of high net worth investors from Asia;
• Pharmaceutical manufacturing;
• Construction & labor ;
• Ship repair;
• Safe haven port ;
• Silicon village initiative; and
• a satellite launch industry.