3 December 2020ArticleAnalysis

Playing a leading role

The jurisdiction’s robust regulatory framework and supporting service providers remain positioned for continued growth opportunities, says CIMA.
The evolving COVID-19 pandemic continues to require many industries in the world, including the insurance sector, to face adaptability challenges. Despite the challenges faced, the Cayman Islands’ insurance industry demonstrated not only its ability to adapt to circumstances but maintained an upward trend for the fifth consecutive year, demonstrating that the jurisdiction’s robust regulatory framework and supporting service providers remain positioned for continued growth opportunities.The Cayman Islands has maintained its position as the second largest domicile for captives and a dominant jurisdiction worldwide for healthcare captives, group captives and catastrophe bonds. Since the previous report, the jurisdiction has seen an increase in reinsurance company formations, signifying that the Cayman Islands is fast becoming an international hub for reinsurance business.In addition to this, the Cayman Islands has maintained its leading position as an important global financial services centre, while providing professional services to various aspects of the industry, such as corporate services, banking, investments, fund management, securities and private and commercial trusts.A thriving sectorWithout compromising the standard of business associated with the jurisdiction, 26 new re/insurer entities were formed and licensed in the Cayman Islands as at September 30, 2021. The total number of licensed insurance entities relating to the international insurance sector was 662 entities and 42 Portfolio Insurance Companies for this same period. Cayman-based group captives continue to report exponential growth in their programmes and membership.

The jurisdiction’s international insurance industry continues to perform as expected, with approximately 90 percent of insurance risk emanating from North America. Despite diversification trends in the industry following the adaptability required as a result of the COVID-19 pandemic, prominent risk types remain healthcare, workers’ compensation, property and general liability.As of September 30, 2021, the international insurance industry has grown to report approximately $23 billion and $76 billion in total premium and total assets, respectively.On the domestic front, the Cayman Islands has one of the highest insurance densities and penetration ratios in the world, with 25 active insurers offering various life, annuity, health and general insurance products to residents and businesses. The international and domestic insurance industries both play a vital role in the overall success of the financial services industry and the wider economy of the jurisdiction.While it is encouraging to see the continued formation of traditional captives, including healthcare captives which represent at least one third of the captives in the jurisdiction, insurance companies continue to be motivated by commercial needs, which results in far more sophistication within the captive insurance and reinsurance space.

“The acceleration of digital technology and innovation will demand flexible and efficient insurance vehicles.”This includes the entry of blockchain technology, particularly in the form of smart contracts. As the primary financial services regulator, the Cayman Islands Monetary Authority (CIMA) continues to adapt the regulatory framework for this trajectory of development since captives have been well-established as a versatile and efficient risk-financing tool formed to provide greater risk management flexibility to their shareholders.The trend of the use of captives to write significant third-party business (based on the Cayman Islands definition of third-party business) and lines of business such as property catastrophe, environment pollution, cyber liability, and loss/theft of digital assets that were traditionally placed in the commercial insurance market, remains.Reinsurance companies have long been a feature of the Cayman Islands insurance industry and in recent years there has been a noticeable growth in the reinsurance sector reflecting the global market’s positive embrace of the local reinsurance regulatory framework and expertise, and consequently, several reinsurance entities have established a presence in the Cayman Islands.Well-established reinsurance companies continue to redomicile their operations from other jurisdictions to the Cayman Islands due to the enhancements made to the reinsurance regulatory framework and expertise available. This confidence also attracts startup companies looking to enter the reinsurance industry and choosing the Cayman Islands as their domicile of choice.

International involvementInsurance is international and cross-border, and CIMA recognises that the globalisation of such products and markets evolves at a rapid pace. International regulatory standards and best practices have also evolved in light of these developments.A leading international insurance jurisdiction such as the Cayman Islands considers it a responsibility to consistently play a part in the global standard-setting mechanism and lead by example in achieving compliance with international requirements. This is demonstrated by the authority’s active participation in proceedings of the International Association of Insurance Supervisors (IAIS). CIMA also represents the jurisdiction on the Group of International Insurance Centre Supervisors as its vice-chair and holds the position of president of the Caribbean Association of Insurance Regulators.Through these engagements, CIMA strives to hold the jurisdiction to the highest standards of quality in line with the best international practices. As of September 30, 2021, the authority has entered into 58 international bilateral agreements and eight multilateral agreements with regulatory authorities, including the Memorandum of Understanding signed by the National Association of Insurance Commissioners in 2018.CIMA is represented in various other international bodies, including the Group of International Financial Centre Supervisors; Caribbean Group of Banking Supervisors; Association of Supervisors of Banks of the Americas; International Organization of Securities Commissions; and the Financial Stability Board’s Regional Consultative Group for the Americas.

2021 and beyondThe evolution of the COVID-19 pandemic continues to drive adaptation on many businesses and operations, and the effects on the global insurance industry will be felt for many years to come. Despite the uncertainty, and as new risks and threats emerge, CIMA remains optimistic that the insurance sector will maintain its growth trajectory driven by coverage gaps and exclusions, the remote working model, and telemedicine.This will result in significant demand for new insurance products and services. Insurers will be required to change their business and service models by embracing advanced technologies to meet pressures. The acceleration of digital technology and innovation will demand flexible and efficient insurance vehicles as well as secure and sophisticated business and regulatory platforms, with strong cybersecurity frameworks.CIMA’s regulatory philosophy remains focused on a responsive, pragmatic, and accessible approach to its Cayman-based re/insurer licensees, significantly contributing to overall success of the financial services industry. The modern and flexible yet robust regulatory framework has proven to be effective under the most challenging conditions and CIMA is confident that the Cayman Islands will retain and attract quality insurance companies, and maintain its dominance as a leading financial services centre in international insurance.