danilovi /
1 December 2017Analysis

Well positioned for growth

The Cayman Islands Monetary Authority (CIMA) is once again pleased to contribute towards a successful edition of the Cayman Captive magazine.

This year marks the 25th anniversary for the Cayman Captive Forum which is hosted by the Insurance Managers Association of Cayman (IMAC), and the authority wishes to extend its congratulations to IMAC for reaching this significant milestone.

Each year, the forum provides an exclusive platform to share insights into the latest developments of the insurance sector of the Cayman Islands—an area where the industry has remained highly competitive for many years.

State of Cayman’s insurance sector

With 839 insurance licensees, the Cayman Islands is the second largest domicile of international insurers (733) and domestic insurers (28) as of 30 September 2017. In addition, there are 31 insurance brokers and 46 insurance agents operating within the domestic market, and 29 insurance managers operating within the international market.

The domestic market comprises nine locally-incorporated companies and 19 branch/agency operations of foreign companies.

Risk location of captives continued to be dominated by North America, which accounts for 90 percent of the Cayman market, followed by the Caribbean & Latin America at 3 percent, Europe at 2 percent, and the remaining global market at 5 percent.

In addition, Cayman is home to nearly 10 portfolio insurance companies (PICs), which are standalone entities within a segregated portfolio company (SPC) structure. PICs are innovative and have more flexibility than a segregated portfolio. Unlike segregated portfolios, they have their own board and can contract with other PICs. A PIC can also transition to a standalone insurance company separate from its SPC.

The international re/insurance market also continues to grow due to new formations and expansion of existing companies. As of 30 September 2017, the industry gained 24 new re/insurers, making a total of 705 international re/insurers.

As a leading jurisdiction for healthcare captives, the market currently attracts more than 40 percent of companies which are writing medical malpractice and professional indemnity as their primary line of business.

Impact of financial assessment

In February 2012, the Financial Action Task Force (FATF) adopted the revised international standards on anti-money laundering (AML) and combating the financing of terrorism (CFT) and proliferation, commonly referred to as the ‘40 Recommendations’. The updated 40 Recommendations introduced a new concept to the standards known as the risk-based approach. This concept resonates throughout the standards and has an impact on the jurisdiction at large, including persons conducting relevant financial business and competent authorities such as CIMA.

As part of the Caribbean Financial Action Task Force (CFATF) assessment in December 2017, the Cayman Islands will be assessed against these standards as well as the Methodology for Assessing Technical Compliance and Effectiveness with the FATF Recommendations.

The insurance industry of the Cayman Islands will form part of the scope of the assessment. As part of its efforts in AML/CFT, CIMA utilises a risk-based approach to ensure that our licensees are appropriately supervised in accordance with relevant laws, regulations, rules, guidance notes and international standards.

Under this concept, licensees are obligated to identify and monitor all related risks. Licensees must ensure that they maintain accurate and effective policies and procedures and records, provide training to staff, agents and intermediaries and conduct their own internal risk assessments with the aim of monitoring and controlling such risks on an ongoing basis.

Given that the risk-based approach concept is a key facet to the AML/CFT regime, CIMA has engaged in stakeholder dialogue sessions to ensure that industry stakeholders understand and adopt this model in their relevant financial business activities.

Growth outlook

The authority is confident that the growth outlook of the insurance industry in the Cayman Islands will remain positive. The jurisdiction is continually attracting new insurer licensees and insurance companies which include startup operations seeking to redomicile to the Cayman Islands from other jurisdictions.

Recent market trends suggest that a large number of re/insurance buyers are seeing the benefits of owning or using captive insurance vehicles to take advantage of their risk mitigation. There has also been a shift in new captive re/insurance company formations, with more and more companies assuming unrelated and non-traditional risks.

Changes made to the Insurance Law, including the supporting regulations and the regulatory framework within the last few years, have also had a positive impact on the insurance industry. As a result, insurance groups, and hedge funds in particular, have chosen the Cayman Islands as a domicile to establish their re/insurance subsidiaries.

Despite the changes in the US healthcare system by way of mergers and acquisitions, it is encouraging to see the formation of new healthcare captives companies to write traditional med-mal liability insurance, as well as non-traditional risks such as cyber risks and medical stop loss.

It is evident that decades of the Cayman Islands’ expertise, regulatory framework, and longevity of the captive industry have contributed to the overall success of Cayman’s financial services industry. As such, CIMA is confident that the insurance sector is well positioned to experience continued growth.

The authority will continue to work with the relevant parties in preparing for the upcoming assessment to ensure that the Cayman Islands remains compliant with the FATF Standards, while ensuring that the Cayman Islands maintains its position as a leading world-class jurisdiction for offshore insurance.