IMAC
IMAC’s Adrian Lynch discusses what the association is currently working on as well as developments in the Cayman captive insurance market
What is new at IMAC?
The Insurance Managers Association of Cayman (IMAC) represents the insurance, reinsurance and alternative risk industry in the Cayman Islands. The association continues to evolve as an organisation in terms of representing our membership within the reinsurance/insurance industry at various conferences, liaising with the Cayman Islands Monetary Authority (CIMA), impending future regulatory changes, risk changes, compliance changes or professional service company changes such as insurance management changes.
The IMAC marketing committee, of which I chair, promotes the brand and jurisdiction. This includes promoting the insurance management community, as a collective and the legislative and regulatory committee, which preempts and reviews any legislative change that may have an impact on our industry. We also have a research and development committee that analyses and preempts evolution and change and what else we should be doing.
The culmination of all that we do is the Cayman Captive Forum that takes place every December—our industry conference which very much serves as an educational and networking opportunity within our client base that totals up to 2,000 people.
What plans do you have going forward at IMAC?
This year has been a great year for the Cayman Islands because of the new business which has reflected on the island in terms of our new statistics.
In Cayman, we currently have around 650 licenses in total. Historically, a lot of those licences would have been B1s, that are single-caring captives, now more and more of our growth is in our B3 space, which includes clients that are part of our third-party business.
Those statistics have been steadily growing over the last few years, this year included. So far this year, we have 145 B3 insurance companies in the Cayman Islands with the bulk of those being new companies in the reinsurance space.
We also continue to have significant growth in the group captive space.
In total, 18 percent of our license base is in the group captive space, when you add that in with segregated portfolio companies, almost 20 percent of our business in Cayman is in the group captive space.
However, the statistics don’t tell a very clear story, for example, some of our largest group captives in Cayman could have upwards of 500 to 600 members and if they each individually had captives that could be another 200 or 300 licences separately. Group captives are something that we’re very proud of in Cayman.
Next year we’ll continue to grow in the healthcare space, group captive space and reinsurance space. The reinsurance space created in Cayman is very much driven by a couple of providers such as Aon.
Previously, industry players in Bermuda have suggested that it’s only a matter of time before Cayman adopts Solvency II equivalence. However, that is far from the truth. Cayman will never pursue Solvency II equivalence because almost 90 percent of our business is sourced from the US.
Cayman is really emerging as a legitimate alternative to Bermuda in the reinsurance space, particularly in the longevity space on the reinsurance side of business. The statistics have reflected that growth over the last 24 to 36 months.
What trends are you currently seeing in the captive trends markets?
The Cayman captive market very much focuses on medical practice liability around the healthcare space. Around 32 percent of our license classification, is essentially made up of healthcare clients.
Over the last few years with ObamaCare, there has been significant consolidation within the healthcare space, which is having a material impact on the number of licenses.
However, when you look at the written premiums and the total assets among those healthcare clients, there has been an 18 to 25 percent increase in premiums written over the last three years.
Although statistically, there’s a reduction in the number of captives on the healthcare side, the premiums written on the assets themselves are actually significantly larger, which reflects the strengthening of the foundation within the healthcare space.
Workers’ compensation and property trends continue to remain solid and we only expect those to grow. Looking at the current market, we don’t necessarily see a hard market, we see more of a pricing discipline emerging.
Within the healthcare space, there’s been a number of reinsurers that have stepped away from that market, which puts more pressure on parent companies to start retaining more risk in terms of stepping up their deductibles and retentions. We are also seeing more of a disciplined approach to that right now, across our books whether its compensation, property or general liability. That same question is ‘should we carrying more risk in the captives?’ That is primarily the reason we’re expecting significant growth over the next couple of years.
Do you think the industry will start to see more blockchain initiatives over the next few years?
There is definitely some change happening with blockchain, although we would call it the digital asset space as opposed to blockchain. We have a number of reinsurance companies that are harvesting blockchain initiatives in terms of digital data that is available to them and trying to revisit the traditional underlying parameters within which they run. Some have been successful, with one or two of those being domiciled Cayman. It’s very new—it’s new for all of us, it’s new from an underwriting perspective and legislative perspective, it’s new from a management point of view. We have other clients who are looking at the use of digital assets in terms of insurance basis.
I don’t believe we will see it trending but it is certainly something that has demonstrated once again that Cayman likes to be preemptive or proactive in a way that the regulator and the industry are willing to embrace opportunities. This has been integral to some of the new initiatives that have taken place and I expect to see more of them going forward.
What will be the domicile’s biggest challenges over the next 12 months?
The biggest challenge will be not embracing change—it’s not a challenge that just applies to Cayman, but will apply to any jurisdiction. We can all accept and have all been witness to the pace of change over the last couple of years, which has been far greater and more impactful in our industry than it has been over the previous 10 years combined.
Embracing change is something that is often discussed in our office. We all have to evolve to remain relevant, it’s not just the jurisdictions, insurance managers need to evolve their individual skill sets, regulators need to evolve, and on top of that, the whole industry needs to evolve.
Everyone needs to embrace change, which offshore jurisdictions can be slow to do at times. It’s incumbent upon all of us to become better generalists in terms of the way we run the business. Regulatory changes will always have a threat. Although regulatory changes strengthen our offering from a government risk perspective, there is always that fine balance of creating a regulatory environment that infringes too much on the ability of the jurisdiction to transact. We are lucky in Cayman because we have a fine balance of a great working relationship, a very practical proportional relationship. I will always be concerned about the impact of reviews from a political perspective, be they from the EU, or the Caribbean Financial Action Task Force.
That forever puts the offshore jurisdictions under the microscope that perhaps other jurisdictions are not necessarily subjected to—fairly, unfairly or otherwise.
We’re very aware of that and we always operate to a standard where we have to be better than everyone else. We have always been proactive and try to embrace many of these challenges head-on, which Cayman will continue to do.
What are the latest regulatory developments for Cayman?
It’s a constancy of change, and more of an evolution of the existing regulatory framework. For example, the licencing process in Cayman, it’s something that is always going under a review. There is some discussion around fines and penalties, which is adding to the existing framework.
There is also discussion around Cayman developing its own separate reinsurance litigation as a jurisdiction going forward.
With the audits that take place within the regulatory sphere, we find we are becoming ever more demanding, the scope is ever increasing but that’s our responsibility as managers to ensure that we’re prepared for that.
We have invested in that space in Cayman, we have full time dedicated compliant resources and every one of our staff sees government risk and compliance as just another function of their role. That is something we feel strongly about here at Aon and it bears itself out very evidently in any kind of request for proposal scenario for any kind of client engagement. It’s something we lean very heavily on—it’s just a function of the world-changing the way it is. Every board should be making demands of their managers, that’s the kind of support they should be seeking.
Every director individually and collectively has obligations now that are far more onerous than they ever have been. When you have an environment where the regulatory framework continues to strengthen, those who do not embrace that and those who do not believe that they have regulatory oversight are just not fit for this jurisdiction and are better going someplace else.
How are captive figures looking for the end of this year?
When you’re looking at the growth, you can’t necessarily look at it in isolation because, at the end of the year, gross numbers will show a decrease, but that doesn’t always tell the whole story.
Our Q1 was a very robust quarter, Q2 was quiet, but our Q3 is very strong. I know Q3 has been very strong for Aon in terms of growth. The final quarter should be close to strong, I predict that we might be a few higher than we were this time last year.
For a 45-year old industry, we’re obviously going to have licences that are handed back, companies that go into run-off, companies that merge, companies that are no longer required.
The quality of the new clients are very different, the new premiums written and capital rates required are very different and the range and scale of new business that has been written in terms of new lines of insurance are very varied—and much more varied than of the past. The requirements of the clients—whether it’s underwriting, actuarial, government risk, compliance and financing support—are very different than they have been historically. The new material is trending in a very positive direction.
How do you expect the market to grow over the next 12 months?
There’s very much a growing trend within the jurisdiction. The current hard market cycle hasn’t really bitten yet. I expect that in 2020 we will see an increase in terms of increased retention and increased deductibles as a result of the hard market. On the group captive side, we will also continue to see that growth.
Cayman as a jurisdiction will start reporting more in terms of group captive statistics, the digital asset space and blockchain. I personally, would also like to see the increase in capital written in the healthcare space continue.
On the reinsurance side, we should continue to see a bullish, solid growth and new establishers in Cayman. We’ll see reinsurers that want an alternative in Solvency II requirements. I’m excited for Cayman as we continue to evolve. Aon has been very good to us in the reinsurance space.
I’d like to see managers embrace it a little bit more. In terms of the jurisdiction, IMAC is looking forward to 2020. We’re looking forward to conferences other than ASHRM and we may even see ourselves attend things like Refocus as well as other conferences.
IMAC is getting support now from Cayman Finance, the marketing arm of the government. We have a reinsurance roundtable in New York in January as part of the Cayman Finance New York Breakfast that takes place annually.
I’m excited about next year. As we’re in Q4 2019, we’ve already seen some new opportunity coming our way for 2020.
