Captives 101: care for your captive
Companies that set up captives in the Cayman Islands must have a good understanding of the purpose, financing and structure of that captive, especially if they are doing it for the first time.
That was the main message to emerge from one of the first presentations at the Cayman Captive Forum, which started at the Ritz-Carlton hotel in Cayman on Tuesday.
At a roundtable discussion, Alexandra Clynes, senior associate at Campbells, Alvin Kwong, actuary at AKA Consulting and Ranald Henderson, senior account manager, Strategic Risk Solutions, discussed the basics of captive formation in a session entitled ‘Captives 101’.
The panel pointed out that there can be a wide range of reasons why captives are set up, which can include insuring the uninsurable that the traditional market won’t touch, reducing or managing costs, getting access to reinsurance and tailoring policy terms and conditions.
The panel also explained the reasons behind the growth of captives in the Cayman Islands, especially over the past five years. These include a robust regulatory regime, the concentration of experienced service providers and a low financial barrier to entry.
The panel also pointed out that directors on captive boards have a fiduciary duty to the company itself and not to shareholders, something that must be borne in mind.
They also stressed that there are three key people that are vital for any captive insurer – an insurance manager to manage the company and provide financial reporting and other data, an attorney to provide legal services and manage key legal documents and regulatory approvals and finally an actuary to handle areas like risk management. The selection of these three people can be vitally important for the captive’s success.
Finally, the panel ran through a checklist of things that can lead to success for a captive. These included active participation by the captive owner, robust governance by the board of directors, regular reviews for financial, regulatory or tax compliance reporting to find any gaps or changes and strong relationships between service providers.