What is a Captive
A pure captive is an insurance company which insures the risks of its parent. It is your very own insurance company. You pay premiums, and the captive issues you an insurance policy and covers any losses under that policy you incur. There are many permutations of the captive to fit specific needs, such as captives that issue polices to other related companies, captives that take on a degree of non-related risk, or group captives that have multiple shareholders and insure the risk of all the shareholders’ companies. For our discussion, we’ll keep it simple and address pure captives.
Captives
A Captivating Way of Controlling Insurance Costs
Insurance, the equitable transfer of the risk of a loss from one entity to another in exchange for payment, has been around for centuries. Over 500 years ago, ship owners in London met in Lloyd’s coffee shop to write down their names and value of cargo. These were the first recorded private agreements to share risks associated with cargo. Now, the captive industry is the new kid on the block and in relative terms is still in its infancy. Essentially, captive insurance companies are established with the objective of insuring risks emanating from their parent group or groups. Ultimately, a captive is a sophisticated way to reduce the amount of insurance paid to somebody else, control costs and losses and build a fund to properly manage inevitable risk.
Why Cayman?…It’s captivating
A sleepy Caribbean island 40 short years ago, Grand Cayman has established itself as a mature, sophisticated international financial services centre, providing institutionally focused, specialized expertise to a global client base. Cayman is the 5th largest financial center in the world; home to 425 banks and trust companies, 765 insurance companies, 9,000+ mutual funds, the preferred shipping registry for the world’s mega-yachts, and a stock exchange with over a 1,000 listings. In support of this industry, Cayman has developed a highly qualified financial services infrastructure of lawyers, accountants, bankers, insurance managers, company managers, fund and investment managers, and other financial specialists. Additionally, the regulatory body, the Cayman Islands Monetary Authority (“CIMA”), provides a very professional, proactive and client-focused regulatory environment, widening investment opportunities and the facilitation of legitimate international movement of funds. As a result, Cayman offers a veritable one-stop shop for all your financial services needs, while remaining flexible and nimble enough to react to new products and initiatives, and has achieved this at the same time as meeting or exceeding all international standards in the areas of anti-money laundering, know your customer, proceeds of criminal conduct legislation, and complying with all international regulatory standards.
In support of this industry, Cayman has developed a highly qualified financial services infrastructure of lawyers, accountants, bankers, insurance managers, company managers, fund and investment managers, and other financial specialists
The above success is no better evidenced than in the area of captive insurance, where Cayman is the leading domicile for healthcare related captive business and the second largest overall captive domicile – only Bermuda has more. From humble beginnings in the late 1970’s, Cayman is now home to 765 captives writing more than $7.5Billion in annual premium and having total assets in excess of $30Billion. Within that number are 126 segregated portfolio companies having over 500 cells in total.
So what fuels the continued success of the Cayman Islands as a leading captive domicile ? Well, this can be simply attributed to the unique partnership of a sound and business-focused regulatory regime, together with the unwavering support of the Cayman Islands Government and the Insurance Managers Association to promote, maintain and protect the reputation of Cayman as the domicile of choice for captive insurance. This only goes to show what can be done when a domicile truly works together towards a common goal. Further information on the regulatory environment can be found on CIMA’s website – www.cimoney.com.ky
The annual Cayman Captive Forum, organized by the Insurance Managers Association, attracted over 800 delegates in December 2007 and featured a wide range of speakers and educational presentations on all aspects of the captive and insurance industry. The 2008 event is scheduled from December 2nd to 4th at the Ritz Carlton, Grand Cayman. Further information can be obtained at www.caymancaptive.ky.
Traditionally, when people think of captive insurance companies, they first think of “single parent” structures in which a captive insures or reinsures the risks of its parent or affiliates, but more and more businesses are now discovering the benefits of group or association captives, as well as segregated portfolio (also known as protected cell) captives (“SPC”). An SPC is a single corporate legal entity with the benefit of statutory segregation of assets and liabilities between segregated portfolios established within the company. This allows for one entity to cater for a number of insureds without the risk of cross liability.
There are many benefits from establishing your own captive insurance vehicle, or joining an existing one, including such aspects as coverage and program design flexibility, insulation from market fluctuations, control of costs, improved cash flow and an improved negotiating position. These benefits are generally acknowledged at the feasibility stage, however, there are others that may not be foreseen at the time of establishing the captive, but which soon take on increasing importance, as follows:
Safety Culture
The most significant is the development of an enhanced safety and claims management “culture” throughout the organization. When insured in the traditional marketplace, most entities will balance the health and safety regulatory requirements with the cost benefit of their implementation, and the establishment of quality control initiatives (in whatever field) with the downside risk of an insurance claim that ultimately gets spread to thousands of other policy holders. However, once in the captive insurance arena, the scenario changes dramatically. With premiums more closely tied to your own loss experience, and every amount saved potentially flowing to the bottom line of the captive and ultimately its owner(s), the incentive to focus on reducing incurred claims by enhancing the emphasis on safety takes on an entirely new importance.
Whereas before, insurance was usually handled by the HR or Finance departments as a “necessary evil”, and rarely came to the attention of senior management, now the latter can sit on the captive’s Board of Directors and have the opportunity to interact with external professionals and captive advisors, who bring to the table a wealth of knowledge that might otherwise never reach them. Additionally, in a group captive environment, they have the ability to exchange success stories with other shareholder companies, whether or not in related industries. As a result, and most importantly, the culture shift permeates from the top down….incentive programs can be initiated, modified duty/return to work programs are implemented, risk management studies are carried out – often with grants from the captive’s budget, and claims and case management programs are put into place. So now, instead of being a “necessary evil”, the insurance program can have a significant beneficial impact to the bottom line, as well as being a positive influence on employee recruitment and retention.
Investment Opportunities
Over a relatively short period of time, captives can accumulate significant amounts of investable assets (representing loss reserves and shareholder’s equity) and one of the benefits of a captive is that the investment returns remain with the captive, rather than with the policy issuing carrier under the traditional market scenario. Opportunities for investment by offshore captives are quite diversified, as long as they meet the approval of the local regulatory body, which has an obvious interest to ensure that the captive’s assets will be available to pay claims. So as long as the regulators are comfortable with the captive’s investment policy, the parent has potential access to funds that would otherwise be earning income for the traditional policy issuing carrier.
Structuring Shareholdings
The potential for structuring the captive’s shareholding will obviously depend on the nature of the captive’s ultimate parent i.e. publicly traded entities will have much less flexibility than privately held “family” concerns, but there may still be opportunities not previously considered. Obviously, any captive shareholding structure should always be fully reviewed and agreed by appropriate legal and tax advisors.
The use of different classes of shares and/or fractional shares, or having shareholder obligations rest with one type of share, while dividends flow to another type, are just a couple of examples of options potentially available that can have a very beneficial impact on the parent entity’s overall tax planning abilities.
Mike Gibbs
Should you wish to learn more about the Cayman Islands and/or the captive concept, and how they may be able to benefit you or your organisation, please contact Mike Gibbs, the President of Kensington Management Group, Ltd, the largest independent captive manager in the Cayman Islands.
Mike Gibbs, President of Kensington, and past Chairman of the Insurance Managers Association of Cayman can be reached at 345 814 7000, via email at mgibbs@kensington.ky or at www.kensingtonmanagement.ky .
The uphill battle against piracy in Russia
The uphill battle against piracy in Russia
Russia’s vast territory makes the country vulnerable to IP piracy. In this article it is examined how Customs procedures can help rights owners, inparticular in the area of trade mark protection.
General information and figures
Russia is well-known for its piracy markets. According to the wildest estimation almost 80 – 90 % consumer goods are counterfeits in Russia. It is also estimated that 40 % of all alcoholic beverages and 36 % of all groceries are counterfeits. In addition to alcoholic beverages and groceries typical counterfeits nowadays are sports clothing, cosmetics, shoes and, of course, DVD and CD discs. CTA (European Communities Trade Mark Association) has recently estimated that the value of the piracy is almost 60 billion Euros in Russia. Amount of counterfeits is constantly growing.
It is admitted that piracy causes enormous financial costs to the Russian Government in lost tax and customs payments not to mention of the health risks to consumers when they purchase fake medicines, food products or vehicle parts and / or fittings. Although the current situation is quite concerning some measures have already been taken. For example the year 2007 was declared as “Year of Combating Counterfeiting” in Russia. Further, the Customs officers have been educated and co-operation with foreign Customs has increased. In addition, Russia has concluded a bilateral agreement with USA for more efficient measures against piracy.
There are also efforts to harmonize legislation between Russia and EU. In the fight against IP infringement one of the most important tools is cooperation with Customs. This is especially the case in Russia, which is such a vast country that finding every infringer can become a very difficult job indeed. Therefore it is often much more cost effective to prevent the infringing goods being imported and exported from the country.
Actions at the Customs Legislation
The co-operation and actions at the Customs are regulated by the Customs Code. The “Regulation on protection of intellectual property rights by Customs Authorities” in 2004 improved protection of IP rights against counterfeits. For trade marks co-operation with Customs is straightforward; the trade mark owner can file a customs surveillance application at the Customs to prevent import of the counterfeit goods to the Russian markets. There are, however, following prerequisites for the co-operation; without a relevant trade mark registration and valid Customs surveillance application the Customs may not interfere to the counterfeits.
In other words the trade mark rights needs to be first protected and registered both at the Patent Office and Customs before any measures against counterfeits can be initiated. There are plans to make minor changes to the Customs Code. It is planned to give the Customs right to stop and seize suspected goods also without a valid surveillance application. This will certainly help the Customs officers to interfere to the obvious counterfeits.
Customs surveillance application
As said before the owner of a trade mark can file a Customs surveillance application at the Russian Federal Customs Service to prevent import of counterfeit goods to Russia. The application can be based on trade marks, appellations of origin and copyrights. Inventions, utility models and designs cannot be included in the application and thus Customs does not monitor such counterfeits. The applicant may determine the validation of the application. The application can, however, be valid for 5 years at the maximum but it can be renewed based upon request filed at least two month before the expiration of the current application.
The Customs is bound to consider the application within one month of its filing. After this the Customs notifies Customs officers of the application and it is entered into the Customs Register. The Customs then starts to survey goods bearing the trade mark itself or a similar mark. The Customs publishes the applications at their website www.customs.ru.
Without waiting for the changes to the Customs Code mentioned above the Customs has stopped suspected goods also without valid surveillance application; mainly goods covered by the well-known trade marks. In such cases the trade mark owner must file the surveillance application for further proceedings. Currently 1.096 applications based on trade marks have been registered at the Customs Register. This amount is extremely low noticing that there are 278.292 trade marks registered at the Trade Mark Register of the Russian Patent Office. The battle against piracy definitely needs more activeness from the trade mark owners’ side.
Requirements for the application
For the Customs application the following information is needed:
1 The full details of the applicant as well as an Extract from the Trade Register in English,
2 Power of attorney in case a representative is used,
3 Trade mark registration certificate, sample of the trade mark, information about poss ible licenses or assignments,
4 Detailed information of the original goods covered by the trade mark, namely appearance of the goods, packaging, labels, pictures etc.
5 Information about the authorized importers, exporters, producers, other authorized parties, information of the possible place of manufacture of
the counterfeits goods (if known), routes of the usual transportation of counterfeit goods,
6 Written declaration to compensate the possible damages which may be occurred by the Customs measures to the other parties.
What is important here is to make a clear and accurate definition of the goods that might infringe the trade mark rights. For example experience and examples from other countries can be used in making the list. If the definition / listing is too wide, too inaccurate, or too narrow, it will make the Customs officer’s life difficult and in the end prevent him finding the infringing products.
Procedure of Customs seizure of counterfeit goods
In case possible counterfeit goods are revealed, the Customs informs the owner or his representative and suspends the release of the goods for 10 days. In this connection the Customs submits information of counterfeit goods and consignment data (consignor, consignee, trade mark, kind of goods, quantity of samples arrived, other characteristics of the goods and the photos of the goods). Within 10 days (the term can be extended for 10 days) after receiving the Customs notification of the seizure the owner must always apply to the Court for further actions against the infringer. The owner can demand withdrawal from circulation of the counterfeit goods and compensation of damages. The owner can also demand that the infringer bears also other possible costs.
Benefits and defects
The application gives valuable information to the Customs about the trade mark rights. From the application the Customs gets the exact contact details of the owner / representative for the seizure notifications. Applications also help monitoring the markets. Despite the improvement of Customs proceedings the amount of the Customs surveillance applications is disturbing low. It must be admitted that Customs proceedings may be bureaucratic and lack of practice sometimes frustrate the rights owners. One should, however, understand that spreading the information and practice in a country having land boundaries of over 20,000 km can be difficult. In any case the Customs are training and retraining their staff all the time as well as carrying out explanatory work with legal owners and their representatives, such as IFPI, the Russian Copyright Society and the Russian association of trade mark owners (Rusbrand). So it seems that the Customs is making a great effort in stopping at least some of the infringing products, but there is a mountain of work in front of them.
Intellectual Property
PATENTING AS A STRATEGIC ASSET
"An awareness of the differing global legal systems, practices and law is also essential to best use local circumstances. "
1. INTRODUCTION – WHY IP AND ITS MANAGEMENT IS IMPORTANT
Intellectual Property (IP) and its effective generation, exploitation and management throughout the world is often the life blood of an enterprise. One person’s right is nonetheless another’s restriction and the threat of competitive IP may erode business value. Active management both of opportunities in creating and developing an IP portfolio to support a business and identifying, assessing and acting to minimise the risks presented by competitor IP is therefore crucial. IP is an essential plank of a business and like other essential components requires funding, attention and a strategic approach. The effect of not paying attention to IP may be dramatic. Failure to secure optimum IP protection runs the risk of ineffective or incomplete protection for markets, enabling technology and future developments, unnecessary costs in maintaining ineffective rights, lost enforcement opportunities and competitor product encroachment. Unless properly understood and managed effectively, competitor rights may similarly have a direct adverse impact on business performance- through exclusion from a market, threats to plant operation and sales and inferior products through the need to design around competitive IP. Effective management of IP is paramount in generating a global portfolio of real value in a timely manner and reducing serious risks to a business. This requires IP to be viewed as a top-tier strategic priority and for the approach to management of it to form a part of the make-up of the business. How can this be achieved?
2. AN INTEGRATED APPROACH – GLOBAL PORTFOLIO DEVELOPMENT
The business objectives, medium and long term, should define the goals for and so determine the IP strategy. In seeking to achieve this, key aspects of the technology supporting today’s and future business must be protected at the optimum time and protection of pipeline developments secured through continued active management. The IP must be developed to protect not only ones own business and research and technology strategy but also those of competitors around the world. The identification of competitive threats at an early stage coupled with effective planning and action to sweep the planned business and research path clean is equally important. An awareness of the differing global legal systems, practices and law is also essential to best use local circumstances. It is the integration of these factors that enhances the opportunity to create value through IP.
3. NATURE OF PORTOFLIO – BUSINESS DRIVEN
Business objectives may differ widely depending on the nature of a business, its maturity, and position in the global market, scale and financial health. Unless these objectives are supported by appropriate scope of protection, filing strategy and ensuring resilience to attack both in preparing and in developing a patent position full value will not be realised. As a business grows, the supporting patent position ideally evolves in parallel to reflect the developing business position. This may be achieved through informed portfolio development around the world to establish a robust patent position; follow-on filings should reflect research, development and market opportunities whilst shadowing the evolving competitive business. IP supports a business, it is therefore important to identify opportunities for IP protection afforded by the business within the bounds of the legal framework rather than decisions being lead by narrow legal considerations. . Developing IP with a piecemeal case-by-case approach to asset generation without the guiding light of business objectives and without proactive management of competitor IP issues significantly heightens the likelihood of missed opportunities, enhanced risk and value erosion. For enterprises, at an early stage in their life, there may be one or a small number of key enabling technologies which underpin the business. Growth and indeed the viability of the company may be severely compromised by failure to adequately protect such key technologies and so may undermine the foundation of the company and the platform for future development.
4. EFFECTIVE MANAGEMENT – RESOURCES
Bringing together the right mix of skills, experience, resources, systems and management processes for IP allows the integration and effective harnessing of the professional capabilities of the IP practitioner with the business and its objectives. An important aspect includes nurturing an understanding of IP in business and technology leaders so that IP is part of the business processes for managing IP.
5. EFFECTIVE MANAGEMENT – COST EFFECTIVENESS
Patenting is not cheap but the required expenditure can be budgeted and controlled with effective management. Costs can be managed by good decision making at key stages in the life of a patent including an understanding of the cost implications of each decision. Typically decisions involve whether to file, where to file and where to maintain patents. These decisions should be based on the value of the business being protected, the scope of patent protection available and the costs involved. Systems such as the Patent Co-Operation Treaty and Regional Patent Systems such as European Patent Systems enable costs to be staged and managed in parallel with business development.
6. EFFECTIVE MANAGEMENT – IDENTIFYING THE OPPORTUNITIES
Opportunities for valuable IP protection can be missed, this risk can be reduced by effective integration of IP activities with business and research programmes such that offensive and defensive decisions are both informed and taken at an optimum time. A delay in patent filing can lead to a lost opportunity and competitive problems whereas a delay in understanding a competitive portfolio can result in the inability to use the results of expensive research and development. Linking research funding and IP development can be a useful co-ordinating tool. In assessing inventions and opportunities for useful patenting, an awareness of the prior activity in the field is essential. This provides a window on the activities of competitors and how the patenting activity may best be shaped to have maximum impact. Accordingly an organisation needs to have the background information to properly assess and scope opportunities to develop IP of value and to provide a warning of possible competitive patent threats.
7. IDENTIFYING THE RISKS – COMPETITOR RIGHTS
As the candidate technologies develop, it is essential to assess them against competitor patent rights. An infringement study requires an assessment of the scope of protection covered by the competition in the global markets of interest. By selecting the appropriate time for the infringement review, the technologies may be sufficiently developed and few in number to allow a meaningful comparison with the competitor patent position yet still sufficiently early in the development process so as not to incur wasted effort and expense in running into third party patent obstacles.
8. SUMMARY
With thorough informed and educated management IP of value may be developed in an interactive and timely way. It can and should be integrated with science and the business interests, so that resources may be focused on those areas of genuine commercial interest.