Growth in the Cayman group captives industry
There were 121 group captives registered with the Cayman Islands Monetary Authority (CIMA) at the end of September 2019. Since 2017 the gross written premium reported by group captives has grown from $2.5 billion to $3 billion. This represents nearly 18 percent of the total captive B(i) licensee market in the Cayman Islands.
“Group captives offer members the opportunity to participate in an exceptionally sound governance structure.”
Kensington Management Group (KMG), a captive manager based in the Cayman Islands, works closely with Captive Resources, an independent captive consultant, in the US. This duo reports a 22 percent increase in gross written premium and an 18 percent increase in membership since 2017. In that time the number of group captives KMG manages has increased from 33 to 38 in 2019.
Creating a standalone single parent captive can be cost prohibitive for many insureds. Group captives offer an attractive alternative whereby an insured can become a shareholder of a captive owned by multiple shareholder-insureds with similar risk profiles.
The main benefits of joining a group captive are:
- Increased focus on safety: most group captive members cite the increased focus on safety and loss control as being the main benefit of joining the captive. The resulting reduction in premiums is a benefit in addition to the company-wide cultural shift towards improved safety in the workplace. Members are rewarded for effectively managing risk.
- Lower costs: costs are minimised due to sharing proportionally between members. The premium charged will also reflect each member’s risk profile and recent claim experience and can therefore be less than the premiums charged in the commercial market.
Better services and management: the service providers involved in a group captive are all highly experienced in managing and working with group captives, allowing seamless management. - Enhanced profit potential: members can receive dividends on their own loss funds in proportion to their loss performance and on investment income that is earned on funds that are held in the captive.
- Networking and best practices: group captive members benefit from aligning with other like-minded business owners to share best practices on topics such as risk management, loss control, human resources, and overall company management.
- Long-term control of their insurance outlook: group captives offer members the ability to customise insurance programmes that are tailored to their specific needs so they do not pay for unnecessary coverage. As the captive grows, so does its risk tolerance and ability to attract excess reinsurers and other service providers.
- Spending more time on their own business: members have more time to focus on their day-to-day business knowing their insurance coverage is in safe hands with professional insurance managers and consultants.
Given these advantages, more and more companies are being drawn into the group captives space. In addition to the financial benefits noted above, group captives offer members the opportunity to participate in an exceptionally sound governance structure. Board meetings are held at least annually, and in many cases biannually.
The board of directors and members are heavily involved in the management and key decisions of the group captive. CIMA expects all licensees to use a guidance framework to adopt strong corporate governance and risk management policies. This ensures all captives are effectively managed with active participation from member insureds who also participate at the board level.
CIMA requires group captives to submit audited financial statements within six months of their year end if they are actively writing business. This provides further comfort to members that the captive is being appropriately managed and governed.
Group captive membership and gross written premiums look set to continue increasing in Cayman for the foreseeable future. More group captives are being formed each year as members and brokers recognise the benefits of these programmes.
Erin Brosnihan is executive vice president at Kensington Management Group. She can be contacted at: ebrosnihan@kensington.ky
Donna Dreuth is chief financial officer at Captive Resources. She can be contacted at: ddreuth@captiveresources.com
Melanie Snyman is director at PwC Cayman. She can be contacted at: melanie.snyman@pwc.com
