17 December 2014Cayman analysis

A weather eye on opportunities

Captive insurance managers in Cayman are looking to broaden their horizons by breaking into emerging markets around the world, specifically Latin America. Cayman Captive explores the Island’s existing relationships with neighbouring domiciles and the opportunities they present to Cayman.

Cayman’s biggest market for captive insurance, by a long way, is the US. It continues to be the largest source of business by a significant margin. Just over 90 percent of captives on Cayman are formed to insure risks in North America, according to statistics from the Cayman Islands Monetary Authority (CIMA).

But some believe the Cayman Islands cannot rest on its laurels when it comes to US business, and assume it will continue to arrive. Things are changing. Some 20 years ago, only a handful of US states had the ability to support captives. Now, this is an increasingly competitive environment. While states such as Vermont have led the way in this regard, others have followed and compete for business.

All of this means that, while Cayman must continue to ensure its offering attracts US business, its practitioners also have one eye on where other opportunities may exist.

Top of the list seems to be the Latin American markets. The same CIMA study shows that some 3.2 percent of captives on Cayman are formed to insure risks stemming from the Caribbean and Latin American region—the next biggest source of business to the Islands.

Many Latin American countries already have a thriving insurance business and are poised for future growth. These countries are strengthening their tax and legal infrastructure and are proactively evaluating their regulatory environments to drive captive education and expansion.

The evidence for this is even more compelling if other trends are examined. In a recent risk manager survey, some 80 percent of respondents said “yes” to the question “is captive insurance a growing trend?” and 33 percent responded “yes” to “would you consider establishing a captive?”.

In some countries, it seems, Cayman is already the domicile of choice. And it is only a small step, therefore, towards its becoming the first-choice location for other countries in the region.

“Cayman is already a domicile of choice for Puerto Rico and could easily expand to countries that present opportunities,” says Giselle Lugones, executive vice president of Aon Risk Services.

Lugones adds, however, that the size and diversity of the Latin American region makes it hard to generalise about the opportunities there. Regulations vary dramatically between countries. This means that captive professionals should pick their markets carefully and target them in the right way.

“Latin America is an emerging market for healthcare insurance and reinsurance. Each country is at a different stage in its regulatory structure and therefore unique in its risk financing strategies.

“For example, Mexico, Chile, Brazil and Puerto Rico are more sophisticated and present an opportunity for captive development. Peru, Argentina and Uruguay on the other hand are less focused on medical malpractice as an area of concern,” Lugones says.

Latin American prospects

There are tangible things Cayman can do to smooth this transition and attract more business from the region. The domicile has signed a number of tax information exchange agreements (TIEAs) with countries in the region including, most recently, Colombia in July 2014.

Rob Leadbetter, the chairman of the Insurance Managers Association of Cayman (IMAC), says that Cayman views Latin America, but Colombia in particular, as a solid market to target in the captive insurance space.

“This agreement coming into effect reinforces Cayman as a viable option for Colombian companies looking for self-insurance alternatives as well as for investment funds and trusts,” he says. “We are well-positioned to offer a valuable service to these companies.”

"It is definitely starting to pick up-we're getting more and more enquiries from overseas regarding Cayman. People can see how strong the regulation is here." JS DE JAGER

Business opportunities between the two nations continue to be fruitful. According to the 2014 Index of Economic Freedom, an annual guide published by The Wall Street Journal and Washington-based think tank The Heritage Foundation, Colombia has become the third freest economy in South/Central America due to its increased focus on improved regulatory efficiency and enhanced financial sector competitiveness.

JS de Jager, senior vice president of CSI International Underwriting (Cayman), agrees that captive professionals on Cayman see many opportunities in this region—and tax agreements with the likes of Colombia help.

“Although slow moving, we are focusing more and more on Latin American markets as well,” says de Jager. “With Cayman signing so many TIEAs with the South American countries, it’s becoming a huge emerging market.”

There are many other reasons to be positive about the potential growth in the region. In an opinion piece, Carlos Oliveras, managing director of Kane (USA), says he believes that Latin America is a region benefiting from the convergence of many positive factors including economic growth, improving sovereign and operating environments, generally stable political structures, a growing middle class, and an open, competitive market structure, which in combination make it an attractive and lively insurance market.

“We expect continued growth in property, automobile, surety, political risk, life, health and professional liability lines. Growth in infrastructure development will lead to interest from construction, energy and utility companies. Consumption-based companies are benefiting from an emerging middle class.

“As these companies grow, so does their demand for insurance and likewise their potential efficiencies for adopting a self-insurance programme,” he said.

Conor Jennings, managing director at Captiva Insurance Managers, adds that one of the reasons the Latin American region may be seen as a target is because it is on Cayman’s doorstep. But that does not mean it will be easy to win business there—innovation will also be needed to win business.

“There’s no low hanging fruit so we have to be more creative in looking at other markets,” he says. “It’s still fairly difficult regulatory-wise to get business out of South America because it is very expensive.”

De Jager believes that as long as a healthy relationship is maintained with the regulators, then captive insurance managers in Cayman are held in good stead to explore these emerging markets.

“Between IMAC, the managers and the regulators we’re always in contact,” he says. “It’s been a plus point because we work so closely with them so we’re pretty much an extension of their reaching out to our clients while making sure everybody is staying on track.”

Other opportunities

It is not only Latin America that is on the radar of Cayman captives professionals. Canada is also often mentioned as being another potential land of opportunity.

Jennings notes that some regulatory hurdles restrict the ability of Cayman to acquire a significant amount of business from Canada.

“We’re watching that part of the world because there are a lot of Canadian people in Cayman,” he says. “But because we’re all ruled by regulation, it’s not as easy as might be imagined.”

De Jager adds that support is key when it comes to exploring these growing markets. He sees that the Canadian market is definitely getting on board but not necessarily on the private healthcare side, for which Cayman is best known.

“The other industries in Canada such as mining and oil and private industries are huge so we’re very much focused on broadening our horizons there and getting involved,” he says. “For us, it’s about getting a support base and utilising the necessary support from Cayman, not just from IMAC.”

Additionally, Jennings says that Cayman is consistently seeing a lot of strong business from Asia, not just in the insurance sector but from corporate services in general.

“There’s a lot of Asian business coming to the Caribbean,” he says. “We’re always looking at ways to develop those connections while promoting insurance at the same time.”

He adds that many captives professionals are also looking forward to the arrival of new legislation which is currently in its final stages of being submitted to government and embedded in the insurance law, and has been well prepared for by clients.

“Other than that it’s business as usual,” de Jager concludes. “It is definitely starting to pick up—we’re getting more and more enquiries from overseas regarding Cayman. People can see how strong the regulation is here.”

Susan Pateras, senior vice president and healthcare practice leader at Iron-Starr, adds that regardless of the region in question, the challenge of Cayman remains the same: to understand the needs of potential clients and find solutions.

“Cayman has always shown its flexibility and desire to work with clients to understand their businesses, as well as new risks presented in a world of evolving challenges,” Pateras says.