Proposal targets capital from Guam to flow into Saipan

A bill in the Commonwealth Senate proposes to allow and incentivize companies with deep pockets to set aside the millions it would take to insure themselves from natural and manmade disasters at a low tax rate. According to the bill’s senatorial author, Celina Babauta, if the CNMI government authorizes (what is known as) captive insurance, companies operating on Guam with assets to protect and cash reserves will have a mechanism to self-insure.

Self-insurance is an investment of cash held in a back with restrictions for use to repair or revive business following a natural or manmade disaster. For large companies with expensive assets – for example, hotel operations, construction, and telecommunications companies – self insurance may be preferable to buying expensive insurance policies.

The financial implications for the CNMI economy – if the bill passes and the industry is regulated properly – may be rewarding for middle income Commonwealth earners. According to both Ms. Babauta and industry executives, if large Guam and regional companies self insure under CNMI captive insurance law, that will mean they will bring to Saipan banks millions to hundreds of millions of dollars.

And with that new money in the portfolios of banks operating on Saipan, those banks will be able to write more loans to CNMI residents and businesses, amplifying economic activity, according to Ms. Babauta.

“If done right and marketed effectively, this will open the door for small business growth, and so much more for our residents,” Ms. Babauta said. “It’s not a fix all, but certainly another step forward for economic development that benefits families in our CNMI.”

If passed into law, a CNMI captive insurance industry sets the stage for a movement of cash from Guam and other places into Saipan. While Guam allows for captives, its Guam Economic Development Authority has not approved any applications for true captives there. That includes an application by Core Tech International, which seeks to protect both its construction businesses, and the several hotels the company now owns.

NTT Docomo, the parent company of DOCOMO PACIFIC, is rumored to be following Ms. Babauta’s legislation for possible opening of a captive in Saipan to insure its assets throughout the Mariana Islands.

“As insurance markets are hardened globally for a variety of reasons,  businesses around the world are looking for stable, cost-effective means to finance their risks,” David Silva, general manager of AON Insurance Micronesia said. “A captive is a real life insurance company that insures the risks of its parent and/or affiliates.”

Ms. Babauta’s legislation will allow captives, along with financial and investment regulations, asset thresholds, fees to the government, and a 2 percent tax on insurance premiums. That rate rivals the 2.5 percent the Federated States of Micronesia government charges, and is well below the business gross receipts tax of the CNMI government.

Observers, however, worry the legislation may open the door to the often-unscrupulous scammer who preys on the corruption festering in the CNMI government. Or, taking a lesson from Guam, that currently-operating insurance companies in the CNMI may take advantage of a loophole in the legislation and become designated as a captive and take advantage of the tax holiday.

“We took into consideration the loopholes the Guam insurance companies may have taken advantage of, and crafted this bill to prevent that loophole here,” Ms. Babauta told Kandit.

Jobs and career training

Manny Sablan, the executive director of the Commonwealth Economic Development Authority (CEDA), endorsed the legislation and agreed the taxes and fees it would generate would benefit the Commonwealth government. The primary factor driving his support, however, was the potential for job creation.

“By attracting captive insurance companies to set up operations in the CNMI, it will expand its financial services sector beyond tourism and create additional job opportunities,” Mr. Sablan wrote in his letter of support. “Opportunities that specialize in risk management, underwriting, claims management,legal and regulatory compliance, and other related areas. This can result in employment opportunitiesfor local professionals, including insurance experts, lawyers, accountants, and administrators.”

Northern Marianas College vice president Frankie Eliptico confirmed NMC is prepared to churn out graduates who can fill these positions.

“Northern Marianas College graduates, including those who graduate from the NMC School of Business, have launched successful careers in many industries that include hospitality, communications, finance, healthcare management, IT, and yes, they also work in a variety of  positions at different levels within the local insurance industry,” Mr. Eliptico wrote to Kandit.

He continued, “If the bill passes and does open up additional occupations within the insurance industry, our students will have more opportunities to work in risk management, compliance, underwriting, and claims management as listed in the comments from CEDA’s Executive Director. I’m confident that our students will be able to fill these jobs and help contribute to the workforce expansion of the insurance industry while also contributing to the CNMI economic growth.”

Mr. Silva, the insurance industry executive, said the growth in human capital will result in further economic development and tax income, if captives actually are established in the CNMI.

“Captives bring money that needs investing,” he explained, continuing, “They require regulators, attorneys, insurance professionals, CPAs, banks, actuaries, etc., all of which will charge a fee and pay taxes. This is called secondary income.”

The caution, however, is for the CNMI government to get this right the first time, and to provide a captive insurance destination that attracts these captives.

“Businesses who structure captives look for domiciles to place these captives, and just like you like to visit places that have attractive facilities,  businesses go to places with nice things to attract captives, like tax incentives, good infrastructure, a friendly and supportive government to name a few,” Mr. Silva said.

The CNMI, he believes, can attract captives.


  • Mabel Doge Luhan

      08/06/2023 at 4:55 PM

    This is embarrassing to watch: it’s so well-intentioned and so clueless. It’s like a six-year-old coming up with ideas to solve parents’ money problems. “Let’s open a lemonade stand! Let’s dig for gold in the backyard! Let’s sell my drawings!” Adorable, nice effort, here’s a gold star.

    Predictably, there’s going to be a captive insurance commission. There are probably already pre-selected “commissioners,” maybe the folks whose casino commission gig is up.

    At which “training” or “meeting” in Boise or Waikiki did our legislators suddenly find out about captive insurance? Any bets on what’s the next industry someone on Capital Hill suddenly hears about and decides will be the CNMI’s economic salvation? Vineyards? Llama breeding? Semiconductor lithography? Uranium mining? You can pretty much pick one out of a hat. That’s how they got this one.

    The glaringly obvious economic solutions, such as getting rid of the ridiculous anti-business “regulations” of the CNMI government and the culture of shakedowns, are unmentionable, because that would destroy a lot of “important” people’s income streams.

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