In July, the Cayman Islands Monetary Authority (CIMA) announced that the islands’ captive insurance industry had amassed $13.5 billion in total premiums and $82.8 billion in total assets. The results marked a milestone in the domicile’s history, as the highest ever-recorded figures.
In July, the Cayman Islands Monetary Authority (CIMA) announced that the islands’ captive insurance industry had amassed $13.5 billion in total premiums and $82.8 billion in total assets. The results marked a milestone in the domicile’s history, as the highest ever-recorded figures.
Gordon Rowell, head of CIMA’s insurance division, attributes the impressive figures to growth in the hedge fund market.
He says: “Cayman now accounts for approximately 80 percent of the world’s offshore hedge funds. This influx of capital helps provide increased confidence in Cayman as a domicile. The country also maintains an extremely broad base of financial services, as evidenced by its strong banking, fiduciary and funds services.”
Figures aside, Mark Kay, senior account manager at Atlas Insurance Management, highlights Cayman’s leading offshore reputation—second only to Bermuda in terms of the number of licensed captives—as another driving factor in the domicile’s success.
Kay adds: “It is a very sophisticated jurisdiction with service providers in the banking, legal, investment and insurance sectors all of the highest caliber. A client establishing a captive in Cayman has the comfort to know that through the chosen licensed insurance manager, they will be employing specialists in their fields with many, many years of experience and the ability where necessary to call on any number of equally experienced professionals to support the needs of the insurance company.”
Paul Scrivener, a partner at the law firm Solomon Harris, also commends Cayman for the strength and depth of its service providers, pointing out its “amazing pool of talent” across captive managers, law firms, audit firms and banks.
Scrivener adds that the domicile’s solid legal foundation, based on English law, and the political stability of the jurisdiction have also played a vital roles in Cayman’s commendable history.
Regulation renovation
Cayman’s regulatory environment, which Scrivener describes as “modern, business friendly and robust”, has been one of the main reasons the domicile has managed to hold on to its successful offshore reputation.
Scrivener says: “Cayman has always been very successful in striking the right balance between a strong regulatory regime and creating the appropriate environment to attract potential captive owners and their onshore consultants.”
Rowell explains that Cayman’s regulatory framework reflects recognised international standards, as set by the International Association of Insurance Supervisors (IAIS), and “unlike some other regulatory bodies, open communication is encouraged as part of the regulatory process to cultivate, and maintain, positive relationships with licensees, service providers and international agencies associated with the domicile”.
Kay reiterates the domicile’s relaxed regulatory approach. He says: “CIMA and in particular the insurance supervision division, works closely with all licensed insurance managers and their clients to provide a regulatory framework that provides the requisite levels of regulatory control but with an open door policy and a pro-business approach.”
“The new Insurance Law 2010 and more recent amendments [also] give credence to the fact that the Cayman Islands continues to move forward as a world leader in the offshore captive insurance industry.”
The Insurance Law 2010, which came into force late last year, has been well received, says Rowell. He says that the revisions to the insurance law are “broad based” and include “stricter reporting and solvency standards for domestic insurers”.
The amendments include: a restructuring of Class ‘B’ companies into three categories, depending on the amount of related party business; a new class of insurer for reinsurance companies and insurance linked securities; and a harmonisation of solvency provisions that are appropriate to the type of risks being undertaken.
Rowell and the team at CIMA are confident that the new law will “significantly strengthen” Cayman’s supervisory framework, and also present new business opportunities.
“[Cayman] has always benefited significantly from having modern, innovative and practical legislation. Since the legislative framework of a domicile is fundamental for a successful, sophisticated business environment, this is recognised as being an ongoing requirement to the country’s future growth as a market leader,” adds Rowell.
In Kay’s opinion, the Insurance Law 2010 and subsequent amendments, including the Insurance (Amendment) Law 2013, have brought a number of significant changes to enhance the quality, and ability to do, business in Cayman. Kay also highlights the greater level of oversight that the new legislation has offered to CIMA.
Kay explains that the Insurance (Amendment) Law 2013 further enhanced segregated portfolio companies (SPC) and clarified capital requirements at the core and cell level.
“The Insurance (Amendment) Law 2013 also introduced the portfolio insurance company (PIC) which in essence will allow a cell within an SPC to incorporate a PIC and where the insurance business will then be conducted by the PIC. The PIC will be a separate legal entity (an exempted limited company), able to contract with other cells or PICs within the SPC and allow a separate board of directors. The regulations from CIMA with respect to licensing as a PIC are expected to be issued [soon],” adds Kay.
Growing concerns
As industry growth continues at a steady pace, competition becomes an increasingly prevalent talking point—even for the most established domiciles.
Kay feels that the there will be a clear impact on all offshore jurisdictions as the US continues to develop its onshore captive legislation state by state. But despite the competition, his firm is equipped to cater to either option.
Kay says: “Atlas … is one of the few independent insurance managers that is able to offer both onshore and offshore options and will always look to provide what works best for the client. That being said not all [US] states have such legislation and with Cayman continually seeking to improve and expand on its insurance sector with such improved legislation, Cayman will continue to grow as a leader in the offshore captive insurance market place.”
Rowell feels that Cayman’s recent figures have clearly shown that increased competition has not been an issue for the jurisdiction.
He says: “It is fair to say that simply creating a framework for licensing captives is not sufficient and, as such, a number of US jurisdictions will need to hire competent resources and develop internal standards to meet the standards created by Vermont, Bermuda and the Cayman Islands.”
“Regardless, the groundwork and recent growth established over the last five years for the insurance sector remain sound and the industry, in general, has been relatively resilient given the challenging market environment, with subdued global captive formations ranging from 30-40 per jurisdiction annually. However, 2012 ended with tremendous growth resulting in a total of 48 application submissions and 53 licensed by 31 December 2012.”
And while the increase in domiciles doesn’t seem to be fazing Cayman, Rowell does fear that the global challenge of captive growth, including limited collateral options and competitively priced primary markets—that will have a knock on effect for captive owners—could ultimately effect Cayman’s performance.
He adds: “The general-accepted consensus that economic growth may not recover for several years poses yet another challenge. If this occurs, the captive industry will need to seriously contemplate its asset risk exposure.”
But despite the potential challenges, Rowell and CIMA have faith in the strength of a captive industry that has been built on a solid foundation of rigorous risk management.
“Certainly in the last four years, captives and insurance managers have been very efficient at maximising value. We propose that good fundamentals will continually lead to an increase in the usage of captives.”
