Puerto Rico offers something no other jurisdiction in this analysis can: domestic U.S. territorial status, Act 60 tax incentives, and a PPLI regulatory framework under the Office of the Commissioner of Insurance. It is the only ‘offshore’ PPLI jurisdiction that is technically onshore. That unique positioning comes with its own set of risks — some specific to Puerto Rico, some inherited from the wider Caribbean.
THE FRAMEWORK: PUERTO RICO
The International Insurers and Reinsurers Division (IIRD) under Puerto Rico’s Office of the Commissioner of Insurance (OCS) licenses and supervises international insurers. Act 60-2019 (formerly Acts 20/22) provides 100% income tax exemption on dividends and distributions, 75% property tax exemption, and full exemption on premium taxes for Act 60 resident investors. Puerto Rico’s domestic U.S. status means its insurance regulation carries U.S. legal protections — federal court access, U.S. contract law enforceability — unavailable in true offshore jurisdictions.
The ‘frozen cash value’ PPLI structure is Puerto Rico’s most distinctive and contested product. Intentionally designed to satisfy IRC Section 7702(g) rather than 7702(a), these structures allow the death benefit to be as low as 5% of total policy assets and enable policyholders to access up to 90% of contributions tax-free during the insured’s lifetime — an explicit exploitation of IRS enforcement gaps, directly targeting the investor control doctrine’s implementation weaknesses.
THE RISK RECORD: PUERTO RICO
PHL Variable Insurance Company represents the most serious PPLI-adjacent failure in the Puerto Rico ecosystem. A Connecticut-domiciled carrier with Puerto Rico connections, PHL was placed under state rehabilitation in May 2024 with an initial deficit of USD 900 million that grew to USD 2.2 billion by year-end 2024, driven by claims on high-value universal life policies issued between 2004 and 2007. During rehabilitation, PHL’s parent Nassau charged USD 76.3 million in management fees — the liquidation extraction pipeline operating under state regulatory supervision. Connecticut ordered liquidation in late 2025. Approximately USD 120 million in direct policyholder losses are documented, with the full extent still being assessed.
The IRS Act 60 compliance campaign, initially staffed with only 12 personnel in 2021, has intensified significantly since 2025. Suresh Gajwani pleaded guilty in August 2025 to false statements avoiding USD 7 million in capital gains tax. The Senate Finance Committee announced a probe into Pantera Capital founder Dan Morehead in October 2025 for alleged Act 60 abuse involving hundreds of millions in avoided gains. A December 2024 GAO report documented systemic IRS oversight weaknesses. The frozen cash value structure is specifically identified as a target for the proposed Protecting Proper Life Insurance from Abuse Act (December 2024) — legislation that could fundamentally alter Puerto Rico’s PPLI value proposition.
THE RISK RECORD: CARIBBEAN
The CLICO / CL Financial collapse of January 2009 remains the defining event in Caribbean insurance history. Colonial Life Insurance Company (CLICO) and British American Insurance Company (BAICO) mismatched long-term liabilities with short-term products offering guaranteed returns of 8.5% while concealing unsecured loans to the parent conglomerate from regulators. Trinidad and Tobago’s bailout cost reached TT$30 billion (approximately USD 4.5 billion). Eastern Caribbean policyholders, where supervisory frameworks were weakest, recovered only approximately 14% of their claims — a 86% loss rate.
Barbados’s Equity Insurance Company Limited provides a 2025-2026 data point: the Financial Services Commission seized Equity in August 2025 following systemic governance and control failures across multiple regulatory review cycles, revoked its licence on 31 December 2025, and sought court-ordered liquidation as of March 2026. The pattern — regulators acting decisively only after extended periods of identified non-compliance — is consistent across Caribbean jurisdictions.
WHERE THIS JURISDICTION SITS
Puerto Rico sits in its own category — the only domestic U.S. territorial PPLI jurisdiction, which makes direct comparison to offshore alternatives structurally incomplete for qualifying U.S.-resident clients. On regulatory infrastructure, it ranks above the Caribbean islands but well below the major offshore centres: the OCS lacks the supervisory depth of the BMA, CIMA, CAA, or MAS, and the frozen cash value structure’s dependence on IRC Section 7702(g) creates a legislative exposure risk that no other jurisdiction in this analysis carries in the same form. The wider Caribbean — Bahamas, OECS, Barbados — sits near the bottom of the global ranking on both sovereign credit and regulatory effectiveness, clustered with Seychelles in the lowest-tier group. The CLICO collapse established the benchmark for worst-case outcomes in this region: an 86% policyholder loss rate in the Eastern Caribbean, a multi-billion-dollar bailout in Trinidad confined to domestic policyholders, and cross-border policyholder inequality that a 2024 Caribbean Court of Justice ruling confirmed could not be challenged on treaty grounds. Against the Isle of Man, which also generated large-scale retail investor losses, the Caribbean differs in that its failures were insurer-level and conglomerate-level — not regulatory design-facilitated distribution of toxic funds. Against Guernsey and Ireland, both of which had significant documented regulatory failures, the Caribbean jurisdictions lack the institutional recovery capacity that EU membership, Crown Dependency status, and investment-grade sovereign ratings make possible. Sub-investment-grade sovereigns across the region mean that extraordinary government intervention — the only mechanism that partially protected some policyholders — is least available precisely when it is most needed. Puerto Rico aside, the Caribbean as a group belongs at the bottom of the developed-market PPLI ranking.
WHAT THIS MEANS FOR ADVISORS AND CLIENTS
Puerto Rico is genuinely attractive for U.S. resident clients who can satisfy Act 60 residency requirements. The domestic legal framework, federal court access, and tax incentives are significant advantages for qualifying clients. The frozen cash value product carries regulatory risk that is likely to materialise as IRS enforcement intensifies — clients with existing structures should review compliance status proactively.
For non-U.S. clients evaluating Caribbean PPLI, the CLICO collapse, Barbados Equity liquidation, and Bahamian regulatory capture precedents create a regional risk pattern that Caribbean jurisdictions have not collectively remediated. Sub-investment-grade sovereign ratings across much of the region create institutional risks beyond individual carrier performance.
BOTTOM LINE: Puerto Rico offers the only domestic U.S. PPLI option — a genuine advantage for qualifying U.S. residents. The frozen cash value structure carries material IRS enforcement risk as legislative pressure intensifies. The wider Caribbean’s PPLI risk record — CLICO, BAICO, Barbados Equity — reflects endemic supervisory weaknesses that no individual Caribbean carrier selection fully mitigates. For non-U.S. PPLI clients seeking an English common-law jurisdiction with investment-grade sovereign backing, a clean PPLI track record, and statutory policyholder protections, Mauritius presents a more stable risk-adjusted alternative.