With many European countries addressing sovereign debt issues and the impact of quantitative easing still yet to materially affect the US economy, the Cayman Islands continues to move forward, with a rating of Aaa.
Through the third quarter of 2012, Cayman granted 33 licences for new Class B insurers. It has approved an additional 15 this year, bringing the total to date to 48—compared with 46 during the same period in 2011. As in 2011, three licences were granted to existing companies that have redomesticated from other domiciles and more are on the horizon.
This success can be attributed to Cayman being recognised as the world’s most complete financial centre, boasting an infrastructure that supports high calibre professions and a stable political environment that contributed to Cayman being awarded the accolade of Offshore Captive Domicile of the Year at a recent symposium in the US.
With the passing of the Insurance Law 2010 and the recent enactment of an amendment to address transition issues, regulations supporting the Insurance Law are being considered by cabinet along with proposed legislation for Cayman’s version of an incorporated cell company (ICC)—to be known as a portfolio insurance company (PIC). Cayman’s approach to PICs requires a separate company to be established by the segregated portfolio company (SPC) underlying the relevant cell, rather than the cell assuming incorporation status. This allows forcells within the same SPC to contract with one another and facilitates reinsurance and quota sharing of risks. This means that novation can be achieved simply by filing a declaration with the Cayman Islands Monetary Authority (CIMA) as an automatic operation of law.
In addition to the new PIC legislation, the Insurance Law reclassifies commercial reinsurers and special purpose vehicles (SPVs) used to support insurance-linked securities (ILS) from Class B exempt insurance companies to Class D companies.
Acknowledging the fact that the majority of Cayman’s captive business is US sourced, Cayman has sensibly taken a wait-and-see approach to Solvency II. While a commercial reinsurer that writes significant European business may view equivalency under Solvency II as a benefit, the current source of business into the Cayman Islands supports a more pragmatic approach, with the Islands watching the direction of travel of both the National Association of Insurance Commissioners (NAIC) and the Federal Insurance Office with interest.
Cindy Scotland, CIMA’s managing director, has wisely stated that: “Cayman has steadily built a captive insurance industry which it values and, despite the obvious benefits of Solvency II, it is not advantageous to make decisions on a vague promise that captives may be carved out.”
In July 2008, the US Government Accountability Office report GAO- 08-778 stated “factors that attract US-related financial activity to the Cayman Islands include its reputation for stability and compliance with international standards, its business-friendly regulatory environment and its prominence as an international financial centre”.
Nevertheless, new challenges continue to emerge, such as the applicability of the Dodd-Frank Act in the US and whether captives are subject to its remit. Is the payment of premium internally to a wholly owned captive a self-procurement transaction, for example? The direction the NAIC will take continues to unfold and the development and implementation of the Own Risk Self Assessment (ORSA) rules are all issues to be monitored.
Cayman is also currently reviewing the implementation of the Foreign Account Tax Compliance Act (FATCA) and the probability of ratifying an Intergovernmental Agreement (IGA) between Cayman and the US to ensure Cayman’s position as a competitive jurisdiction of choice.
Cayman with its sensible risk-based regulatory approach has tremendous upside potential compared to other offshore domiciles including:
• A sophisticated business-friendly infrastructure; and
• An economic zone and enterprise city, that affords several unique concessions including a 50-year certificate of exemption from income, capital gains and corporate taxes, permission for foreign ownership, exemption from import duties, a guaranteed 10-day fast track to set up operations, five-year work and residence visas and protection of intellectual property.
Commercial reinsurers will be able to enjoy these benefits by establishing operations within the economic zone. Furthermore,ongoing activity is taking place to address immigration policies to accommodate 10-year work permits for senior reinsurance personnel.
In addition, Cayman enjoys geographic proximity to both North and South America, is politically stable and offers a high standard of living to its residents—first class homes along the famous Seven Mile Beach are available to purchase without restriction for overseas nationals. Cayman is an OECD (Organisation for Economic Cooperation and Development) ‘whitelisted’ territory and CIMA is a founding member of the International Association of Insurance Supervisors (IAIS), with a seat on the IAIS market conduct and pension reform sub-committees, as well as being a member of the Offshore Group of Insurance Supervisors (OGIS).
Cayman hosted more than 120 insurance supervisors and industry representatives at the IAIS global summit in June 2012. By some measures, Cayman holds the fifth largest financial centre ranking in the world and is supported by a legal system based upon UK common law.
Cayman is now also embracing medical tourism, breaking ground in August on Health City Cayman, an initiative led by Dr Devi Shetty of Narayana Hrudayalaya Hospitals and Ascension Heath Alliance to provide innovative health care. This facility is expected to support the Cayman Island’s two existing hospitals and will encompass 200 acres of grounds including a tertiary care hospital, a biotech park, and an assisted living community, with the first phase being a 140-bed hospital scheduled for completion in 2013, which will further augment Cayman’s high quality of life.
Clayton Price is chairman of the Insurance Managers Association of Cayman. He can be contacted at: firstname.lastname@example.org
For more information on the Insurance Managers Association of Cayman visit www.imac.ky
Cayman, captive, insurance, Moody's, US, economy