The origins of the international life insurance sector can be traced back to well over 100 years ago, when UK insurance companies established overseas offices to serve the financial needs of the men and women of the burgeoning British Empire.
Since those earliest days, the market for providing financial services to British expats around the world has evolved and grown into the sophisticated and successful industry it is today, catering to a diverse range of individuals and companies globally. In these historic terms, Hansard International is something of a new kid on the block, at just 30 years old in 2017 (happy birthday us!).
The year before we were established, the UK’s 1986 Financial Services Act introduced some of the rules and institutions that have helped to shape some key aspects of the international life industry. By allowing offshore providers to join the UK’s Life Assurance and Unit Trust Regulatory Organisation (LAUTRO), Isle of Man (IoM) insurers could service the UK domestic market under the same rules as onshore providers, so long as there was a local, IoM, policyholder protection scheme in place. This requirement gave rise to the Isle of Man’s policyholder protection scheme, under which if an insurer was unable to meet its liabilities, policyholders would be compensated to a sum equal to 90% of what an insurer owed them, wherever the policyholder resided in the world.
Such a comprehensive, global, compensation scheme gave the Isle of Man a clear point of positive differentiation and competitive edge compared with other jurisdictions, which, on top of 0% corporation tax for insurers, made the island an attractive home for Hansard International, from which we could provide products and services to UK citizens – and those of other countries – the world over.
Another key feature of the Isle of Man’s insurance rules that has helped us to flourish over the past 30 years is gross roll-up.
No lesser genius than Albert Einstein is often quoted as saying that compound interest as the ‘eighth wonder of the world’, and by allowing income and gains to accrue untaxed in Hansard bonds, investors have been able to enjoy substantially enhanced returns compared to if they’d been paying tax as the funds grow.
Gross roll-up has always been, and continues to be, one of the many reasons for the large amounts of fund flows from UK-domiciled investors into offshore bonds. Their UK onshore insurance bond counterparts possessed no such wonder and so suffered in comparison.
The ability for funds to grow free of tax also means investors have a large amount of control over when and where they eventually pay tax, enabling them to, quite legitimately, do so in such a way as to reduce their tax liability on the assets held in the bond.
These features have been key to the appeal of offshore bonds ever since we created our first product in 1987, and are complementary to offshore bonds’ many other attractions, whether when used with trusts, in estate planning, pension supplementation, or in other ways. Whatever tax changes have occurred in the markets in which we operate around the world over the past 30 years, gross roll-up and discretion over how and when taxes are paid, continue to be attractive to our customers and their advisers, wherever they are, and whatever local tax systems they live under.