Domicile selection can be a challenge, particularly in light of the diversity of options. James Rawcliffe of Sagicor talks us through his experiences and the relative merits of three of the leading global domiciles.
Captive parent companies have a surplus of riches nowadays when deciding where to domicile their captives. Gone are the days when captive owners were forced to pick—in the words of one US captive-watcher—between skiing and golf: Vermont or Bermuda. Captives now enjoy a diverse selection of credible domiciles that make the decision to opt for a particular jurisdiction a challenge—although admittedly a welcome one. Cayman Captive spoke with James Rawcliffe, vice president at Sagicor Insurance Managers in Cayman, about his experience across three captive domiciles—Bermuda, Cayman and the Isle of Man—and the relative merits of each jurisdiction.
As Rawcliffe explained, the three domiciles offer captive owners “very similar” regulatory environments that reflect the general convergence of regulatory principles across the leading global captive domiciles. Historically, Bermuda and the Isle of Man had required reporting in addition to the financial statements of licencees, for example the Isle of Man Insurance and Pensions Authority requirement for supplementary information on underwriting results by class of business and captive retentions provided within the audited accounts. The Cayman Islands Monetary Authority (CIMA) reporting requirement historically has been to file electronically via INForms in addition to the audited financial statements.
The introduction of the 2010 Cayman Insurance Law and Regulations has added new reporting requirements, said Rawcliffe, specifically the “reporting by exception” provision, which formalises whistle-blowing by insurance managers and auditors. These recent changes have shown Cayman at the forefront of regulatory thought leadership, raising even further the captive regulatory standard across the domiciles.
Rawcliffe believes that the insurance regulators in all three domiciles are highly experienced and as such captives in each location enjoy a strong level of competent oversight. “Gordon Rowell in Cayman has been in post since the early 2000s, David Vick in the Isle of Man since the mid-1990s and Shelby Weldon in Bermuda since the mid-2000s.” All three bring considerable industry expertise to bear as the domiciles work to regulate captive entities.
"In Cayman many of the practitioners are recruited after their initial contracts with audit
“The three domiciles can rightly be described as a favourable environment for captives,” said Rawcliffe, although he argued that there have been occasions when Cayman has been able to gain an edge on its peers. Harvard Medical School’s captive is a well known example. Bermuda’s reluctance regarding the school’s wishing to add external doctors credentialled to use Harvard’s facilities in addition to its own employed doctors in its medical malpractice insurance programme, was viewed in a different way by the Cayman regulator. CIMA took the view that the captive owners were able to understand this risk profile, and welcomed the captive to its shores in 1976. Cayman hasn’t looked back since and its lead in healthcare draws some impetus from its early willingness.
Rawcliffe added that he had personally experienced something similar when a food services company emerging from Chapter 11 bankruptcy, that had initially sought to set up its captive in Bermuda, was told that its licence would be considered only when its parent company had emerged. “Cayman, on the other hand, was willing to go a step further and approve the captive in principle, with approval becoming unconditional once emergence was complete.”
While all three regimes are “responsive”, Rawcliffe said that it wasn’t until he came to Cayman that he experienced his first face-to-face meeting with the regulator with a captive client for reasons other than non-compliance, where the regulator takes an interest in the ongoing welfare of captive clients and is willing to offer himself as a sounding board and a source of advice. He said that such an open door regulatory approach is greatly appreciated by captive owners and has helped distinguish Cayman from its competition.
One of the steps of forming a captive is for prospective owners to meet with the Cayman regulator, and such an approach has enabled a six-week turnaround time for new captive formations, a benchmark Rawcliffe described as “impressive”. He said that this has provided a consistency to Cayman’s regulatory requirements, and that if captive owners are able to provide all the application paperwork required, then they can expect a streamlined and efficient registration process.
Addressing captive filing requirements, Rawcliffe said that all three domiciles approach such issues in a similar manner, applying “comparable filing deadlines, with fines for lateness and a fee regime for filing extensions”. He said that Cayman does go a step further however, with CIMA’s on-site inspections at the offices of insurance managers which are intended to ensure the strength of governance underpinning the captives.
The supporting cast
Rawcliffe also considers important the “supporting cast” of accountants, auditors and lawyers. As he explained, “you need a strong audit, legal and captive management cadre” in order to have a credible captive domicile. Fortunately, in all three domiciles there exists a strong bench of captive and commercial insurance expertise on which the sector can draw.
As of 2013 Bermuda, Cayman and the Isle of Man are home to 42, 27 and 11 licensed insurance managers respectively, numbers that are “broadly in line with captive numbers in each domicile”. The talent pool is therefore largely similar across the three jurisdictions, said Rawcliffe. “In Cayman many of the practitioners are recruited after their initial contracts with audit firms in the domicile or directly from the Canadian provincial offices of the accountant or auditor general. I recall the same in Bermuda.
“I would add that in the Isle of Man and Bermuda there is a greater ratio of persons recruited from the insurance industry, given the additional underwriting and claims handling service requirements of management performed at the captive level. In Cayman these services on the whole tend to be outsourced to a service provider in the parent company’s home country.”
Rawcliffe said that when he worked in the Isle of Man the role of captive manager was “bifurcated between the accountants and insurance officers where each dealt with their own area of expertise and contributed to the overall client service”, but “never the twain did meet”. In Bermuda there was better cohesion between the two, but it was not until he came to Cayman in 1999 that he found the insurance manager was required to possess “an all-round knowledge of insurance and an appreciation of how an insurance programme works”.
All three domiciles are welcoming to captives, said Rawcliffe, although he singled out Cayman as having perhaps the “greatest sense of captive community”, with the various service providers “willing to share knowledge and advice on how best to mutually serve captive clients”. He said that he had experienced a greater willingness within Cayman’s audit profession to “engage with the insurance manager in seeking client solutions on issues to the mutual satisfaction of the insurance regulator and the client”, than when he had been in Bermuda or the Isle of Man.
On the three domiciles’ approaches to outreach Rawcliffe observed: “I have noticed that all three captive domiciles have stepped up their efforts to attract new captive business. In 1997 the Isle of Man did not have a specific insurance managers association, but since then the Isle of Man Captive Association has grown from strength to strength with regular outreach through captive roadshows in the UK and Europe.
“My memory of Bermuda is that the Bermuda Insurance Management Association did not stage regular events, but since then it has engaged in roadshows in the US and Canada in partnership with the Bermuda government. In Cayman, the Insurance Managers Association of Cayman’s Captive Forum has established itself as the largest captive event outside RIMS. In 1999 the event hosted some 250 delegates; in 2012 approximately 1,300 registrants descended upon Cayman. Furthermore in 2013 the Insurance Managers Association embarked on a rebranding, emphasising Cayman as a domicile with the theme Clearly Better Business.”
Addressing the particular strengths of the three domiciles by line and geography, Rawcliffe said that Bermuda has always enjoyed strong links with the US, but added that its early links with the UK have lessened as parent companies have increasingly opted for domiciles within the EU. Bermuda’s reinsurance sector represents an attractive venue for those captives that need to obtain reinsurance, while in the case of Cayman its strength is in the healthcare area, with a “strong infrastructure whereby the needs of all captives are met irrespective of size”.
The Isle of Man for its part has traditionally benefited from strong links with UK and South African firms that have opted for its shores, the latter born from historic ties, when Manx miners emigrated to South Africa to obtain work as long ago as the 1880s.
Rawcliffe concluded by warning that government changes in the domiciles viewed as harmful to international business could jeopardise such positive developments likely to encourage captive parents to arbitrage their options. He hoped the temptation to raise additional government revenues from the captive industry to mitigate their budget deficits could be resisted.
“Bermuda and Cayman, having undergone elections, have engaged in consultative dialogue with the industry and appear to understand, and the Isle of Man Government’s stable financial position means this is unlikely to be an issue. All told, captives in Bermuda, Cayman and the Isle of Man can expect to continue to benefit from the support of regulators, captive managers and local government,” he said.
About James Rawcliffe
James Rawcliffe has been vice president for Sagicor Insurance Managers since 2003, becoming its captive practice leader in 2009, having initially moved to the Cayman Islands in 1999 with Global Captive Management. Rawcliffe previously worked for Sedgwick Management Services in the Isle of Man in 1996, followed by Marsh Management Services in Bermuda between 1998 and 1999. He presently serves on the Insurance Managers Association of Cayman’s marketing committee.
James Rawcliffe, Sagicore, domicile selection, Vermont, Bermuda, Cayman