Cayman Islands Monetary Authority
CIT talks to Pedro Reis of the Cayman Islands Monetary Authority about how healthcare captives are faring on the island
Why do companies come to the Cayman Islands to set up healthcare captives?
The healthcare captive industry in the Cayman Islands commenced in the early 1970s with a captive serving Boston-based medical institutions during a period of time when medical malpractice insurance was difficult to obtain at a reasonable cost. Given the success of the first captive, other hospital systems soon chose the Cayman Islands as their domicile.
The Cayman Islands captive insurance market is quite varied, with prominent risk types including healthcare, workers’ compensation, property and general liability. The Cayman Islands has developed particular expertise in medical insurance, and with healthcare captives representing 45 percent of all Cayman Islands captives, the Cayman Islands is the number one domicile for healthcare captives.
The Cayman Islands is internationally recognised as a growth market for financial services activities for the insurance industry, and beyond. This is proven by the growth in the hedge fund market, where the Cayman Islands now accounts for approximately 80 percent of the world’s offshore hedge funds. This influx of capital helps to provide increased confidence in the Cayman Islands as a domicile. It also maintains an extremely broad base of financial services as evidenced by its strong banking, fiduciary and funds services.
Its 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. Enhanced international cooperation has undoubtedly contributed to safeguarding the interest of the jurisdictions that fall within the international sectors, and as this is of paramount importance to the Cayman Islands, the Cayman Islands Monetary Authority (CIMA) consistently commits both time and resources to actively participate in international initiatives.
Have you seen a rise in the number of healthcare captives that have been formed in the Cayman Islands in recent years?
Healthcare captives represent 45 percent of all Cayman Islands captives. In fact, during the last eight years, 35 percent of all captives formed were related to healthcare, which shows the dominance of the healthcare business sector in the growth of the industry.
Although our traditional healthcare captives constitute 45 percent of all licensees, the Cayman Islands also has representation from industries such as financial services (25 percent), construction (8 percent), tertiary services (6 percent), transportation (6 percent), technology and engineering (2 percent), energy (2 percent), and others.
What business lines do healthcare captives tend to cover in the Cayman Islands?
Healthcare captives write mainly medical malpractice liability and professional liability, but also workers compensation, general liability and others.
By the end of September 2012, there were 734 active class ‘B’ licencees. Medical malpractice liability was written by 254 captives (35 percent), followed by workers compensation with 157 (21 percent) and property with 90 (12 percent).
To what extent is the increasingly specialist nature of medicine driving new formations in healthcare captives?
Specialised groups have always had a good representation in the Cayman Islands thanks to a good understanding by the regulators and insurance managers of the unique risks facing each speciality. Also, contemporary medical breakthroughs are closely followed. Contemporary medical breakthroughs are also closely followed and the biggest interest in 2012 has been the potential usage of medical stop-loss coverage in the captive in support of internal medicine.
What do you predict for the future of healthcare captives?
The US healthcare reform, and in particular the creation of Accountable Care Organizations (ACOs), may have a positive impact on captive formations in healthcare for two reasons. Firstly, hospitals will be incentivised to hire employed surgeons rather than outsource, which will lead to an expansion of existing liability programmes. And secondly, successful hospitals and their ACOs may be encouraged to market their ACO programmes to other hospitals, using captives to provide indemnity for stop-loss, medical malpractice and other programme coverage.
A number of factors on the immediate horizon could affect global captive growth in the foreseeable future, including the potential impact of the US Dodd-Frank Act, the Patient Protection and Affordable Care Act, the Foreign Account Tax Compliance Act, and the threat of further global economic weakening.
Despite this, the Cayman Islands remains a very popular jurisdiction for captive formations, which we attribute to a combination of our open international dialogue, skilled workforce, together with a harmonised regulatory environment. CIMA is now reaping the benefits of effective strategies in the form of captive growth and an increase in the size of the existing captive licensees.
One of the strategies that makes our regulatory body unique is the combination of private sector experience and specifically the number of our staff that have worked at insurance companies. This knowledge really helps when dealing with business plan development and even with distressed situations. We will continue to leverage its positive relationship with local and international insurance associations and agencies, as well as the new law complementing an already proportional form of regulation.
