Setting the standard
What’s the current state of the captives market with regard to Cayman?
The Cayman captive market continues to show exciting growth and activity. The Cayman Islands is the leading jurisdiction for healthcare captives, representing almost half of all captives. This is despite the steady consolidation of US healthcare systems in recent years, as a result of the passing of the Affordable Care Act in 2010.
As of June 30, 2017, there were 673 B licensees. In the first 6 months of 2017, four B(i)s and nine B(iii)s have been licensed. Total premiums as of June 30, 2017 were reported at $12.4 billion, and total assets were reported at $62 billion.
Pure captives and group captives are the largest categories with 327 and 117 each. Medical malpractice coverage continues to be the largest primary line of business (32 percent), with workers’ compensation second (21 percent). North America continues to be the principal source of risk for Cayman captives, making up 90 percent of total risk re/insured through Cayman captives.
Why are the Cayman Islands so attractive to overseas investment?
First and foremost, the Cayman Islands has in place a robust regime for regulation and cross-border cooperation which has surpassed many of the world’s top international finance centres. The jurisdiction is recognised internationally for its efforts in adhering to, and in some cases exceeding, international regulatory standards.
The Cayman Islands is recognised by the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund and other international bodies as having transparency and standards consistent with those of other major developed countries. The Cayman Islands is a Financial Action Task Force (FATF)-compliant jurisdiction and is a member of the Caribbean Financial Action Task Force (CFATF).
The Cayman Islands has maintained this robust regulatory environment while maintaining an ability to be nimble and agile, which positions the Cayman Islands well compared to other jurisdictions.
The Cayman Islands is commonly referred to as a tax-neutral domicile. The economy relies on tourism and financial services, and its infrastructure is funded by a government revenue plan that heavily relies on direct taxation revenues from hotel tourism, as well as significant duties levied on all imports. As such, no corporate income taxes exist in the Cayman Islands.
The Cayman Islands has a stable government, with ongoing UK stewardship by the islands’ governor, an appointment made by the UK government to represent HM Queen’s interests in one of its British Overseas Territories.
The Cayman Islands’ proximity to the US adds to the attraction of investors from North America, and is an enjoyable as well as efficient visit for the US business traveller. The warm year-round climate and beautiful beaches, combined with outstanding hotels and meeting facilities, is another key attraction.
The local financial services infrastructure is extremely well established over a number of decades dating back to the 1960s. Many major law, accounting and other service provider organisations have established and grown here, and with that so has their expertise in all facets of offshore financial services business. Such a proven track record helps satisfy many of the concerns of many potential investors in the Cayman Islands.
Why have so many captives set up shop on Cayman?
In addition to a robust and internationally-recognised regulation, tax neutrality, government stability, local professional expertise, and a proven successful track record in the captives industry, the Cayman Islands also has some of the most experienced and trusted captive management organisations, accounting firms, insurance advisors, and financial institutions available.
EY is dedicated to the Cayman Islands insurance captive practice and this focus has increased with our Global Captive Platform. With our Global Captive Platform, EY is dedicated to providing a full suite of services including advisory, assurance, regulatory and risk, tax, and transaction advisory services.
Where does Cayman stand when compared to other captives domiciles?
We believe Cayman is in the top three, the others being Bermuda and Vermont. With its core business of medical malpractice, workers’ compensation, and group captives, Cayman continues to present opportunities for companies that are seeking an efficient capital and tax structure, with a strong and nimble regulatory regime that is proactive in reviewing new and developing products.
Cayman continues to be an early adopter of concepts beneficial to the evolution and development of captive insurance programmes to meet the needs of their users. As an example, in May 1998, Cayman became one of the first jurisdictions to pass segregated portfolio company (SPC) legislation.
This formalised the old rent-a-captive models into a ready-made legal structure that could further reduce the costs of maintaining a captive insurance programme.
Roll forward to new 2015 legislation, and the SPC concept evolved further into a new structure known as a portfolio insurance company (PIC), which enables entities within the PIC to transact business with each other. Again, Cayman became one of the first jurisdictions to introduce such structures.
Successful and timely initiatives such as these will help maintain Cayman’s position in the group of leading global domiciles for captives.
How has the Cayman government acted to protect its position as a captive domicile?
Government has increased funding to the Cayman Islands Monetary Authority (CIMA) in recent years. This has addressed resource needs, as well as being used for continued marketing efforts. FATCA and CRS requirements have been addressed such that cross-border transactions can flow without penalty.
Legislative change occurred in 2010 when the Insurance Law was overhauled, and work is already underway to consider further legislative changes that will be beneficial to the Cayman Islands reinsurance and captive insurance industries. The aim is for both to co-exist under fair, proportionate and consistent regulation.
How have the Cayman regulators acted to support the domicile?
The Insurance Supervision Department at CIMA has expanded its resources significantly in recent years with a number of important appointments being made throughout the department to bolster headcount and to improve the quality and timeliness of communications with insurance managers and their licensees. We are hearing very positive reactions from clients and others on the responsiveness of CIMA and their focus on the regulation of the businesses in the Cayman Islands.
David L. Brown is senior partner, financial services at EY. He can be contacted at: david.l.brown@bm.ey.com
Ian Lomas is partner, financial services at EY. He can be contacted at: ian.lomas@ky.ey.com
