The Cayman Islands is well positioned to lead the development of the growing captive, insurance-linked securities and reinsurance industries and maintain its position as a reputable, responsible and world-class international re/insurance hub, says Cindy Scotland, managing director of the Cayman Islands Monetary Authority.
After nearly five decades as an established financial centre, the Cayman Islands today is home to a thriving re/insurance industry, which is bolstered by prudent and robust regulation.
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. The recent formation activity in the reinsurance space is evidence that the jurisdiction is fast becoming an international reinsurance hub as well.
The Cayman Islands recognises its responsibility to be part of global standard-setting mechanism and lead by example, by setting high standards and achieving compliance with international standards.
In addition to its growing international insurance sector, the Cayman Islands has long been established as an important global financial services centre helping to ensure the flow of the global economy and providing professional services to many aspects of the industry such as banking and investments, fund management and the formation of private and commercial trusts.
The Cayman Islands international insurance sector
Quantitative measurements such as the number of licensees or total premiums or total assets are often used to rank and promote jurisdictions, but the Cayman Islands has taken the stance that a quality-based growth is essential to maintain its leading global position and remain a responsible and respected jurisdiction, one which does not pursue insurance companies including captives with controversial legal and tax structures.
Through selective and quality-focused efforts, the jurisdiction has been able to maintain its leading position in the international insurance sector and has also reported a healthy growth, especially in the last four years.
A total of 105 new re/insurer entities were formed and licensed between 2016 and 2018, and 28 new re/insurer licenses have been issued for the first nine months of 2019. The total number of licensed insurance entities relating to the international insurance sector was 628 entities and 28 portfolio insurance companies at September 30, 2019.
Cayman-based group captives have reported exponential growth in their programmes and membership. The jurisdiction’s international insurance industry comprises mainly insurance risk emanating from North America, which is approximately 90 percent of the risk underwritten. The industry is quite varied, with prominent risk types including healthcare, workers’ compensation, property and general liability.
Over the years it has grown to report approximately $17.5 billion and $64 billion as total premium and total assets, respectively.
In the domestic insurance sector, 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 critical role in the overall success of the financial industry.
It is encouraging to see traditional captives including healthcare captives continue to be formed, and it is also promising to see the increasing diversity of insurance companies being formed in the jurisdiction, especially in the last four to five years.
In general, captive structures have been put to more sophisticated use by their owners in the recent past and there has been the entry of blockchain technology, particularly in smart contracts into the captives and reinsurance space.
As regulator of a leading jurisdiction, the Cayman Islands Monetary Authority (CIMA) sees this as a positive development since captives have been well established in the insurance world as a versatile and efficient risk-financing tool formed to provide greater risk management flexibility to their shareholders.
Another notable development is 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.
Reinsurance companies have long been a feature of the Cayman Islands insurance industry, but in recent years there has been a noticeable growth in the reinsurance sector. It is evident that the global reinsurance markets have reacted positively to the local reinsurance regulatory framework and expertise, and consequently, several reinsurance entities have established a reinsurance presence in the Cayman Islands.
New reinsurance licence applications over recent years have come not only from startup companies seeking to enter the reinsurance industry but also from well established companies re-domiciling their operations from other jurisdictions to the Cayman Islands. Additionally, with enhancements made to the reinsurance regulatory framework, CIMA has added individuals who bring a wealth of reinsurance knowledge and practical experience at a senior level to provide that specialist regulatory oversight to complex and sophisticated reinsurance companies.
The largest 20 commercial reinsurers domiciled in the Cayman Islands have reported total assets of $21.1 billion, approximately one-third of the total assets of international insurers. In addition, total assets of the catastrophe bond reinsurers are approximately $5 billion.
Cayman’s international involvement
Insurance is international and cross-border, and CIMA recognises that the globalisation of insurance products and markets evolves at a rapid pace. International regulatory standards and best practices have also evolved in light of these developments.
As a leading international insurance jurisdiction, the Cayman Islands recognises its responsibility to be part of global standard-setting mechanism and lead by example, by setting high standards and achieving compliance with international standards. This is demonstrated by CIMA’s active participation in proceedings of the International Association of Insurance Supervisors.
The Cayman Islands is represented 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 so that our insurance licensees receive much deserved global recognition.
To date, CIMA has entered into more than 50 international bilateral agreements and six 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, to name a few.
2020 and beyond
The acceleration of digital technology and higher speed of innovation will demand flexible and efficient insurance vehicles as well as sophisticated and secure business and regulatory platforms.
Captives by nature will be better placed to make use of this opportunity over larger and rigid commercial insurance companies. Through a modern, flexible yet robust regulatory framework, CIMA is confident that the jurisdiction will continue to attract international re/insurers including captives of all types, and thus maintain its dominance as a leading international insurance centre.
CIMA expects reinsurance groups and potential investors which are looking for financial, political, regulatory stability and modern infrastructure to find the Cayman Islands to be an attractive jurisdiction in which to form a reinsurance company.
Cayman’s credit rating of Aa3 with a ‘stable’ outlook affirmed by Moody’s Investors Service, a strong regulatory regime and flexibility, which allows reinsurers a high degree of operational freedom including an internationally recognised accounting regime that suits their lines of business and internal capital models, are some of the reasons to which this positive forecast can be attributed.
CIMA’s regulatory philosophy to remain responsive, pragmatic and accessible to Cayman-based re/insurer licensees has undoubtedly contributed to Cayman’s overall success. CIMA will continue to collaborate and maintain a strong consultative relationship with its licensees, industry bodies and other important stakeholders such as the legal and auditing fraternities, to ensure that the jurisdiction’s regulatory regime remains robust yet flexible to attract and retain quality re/insurance companies.
Cayman Islands Monetary Authority. www.cima.ky
Cindy Scotland, Cayman Islands Monetary Authority, CIMA