Wayne Panton
14 December 2016Cayman analysis

The first choice for captives

In a global landscape dominated by change, the Cayman Islands stand firmly as one of the world’s leading financial centres and a jurisdiction of choice for captive insurance companies. Maintaining such a strong position requires initiatives that foster positive relationships with you, our esteemed service providers, and your valued clients.

The strength of the captive industry in Cayman is evident, thanks to steady growth. According to our financial services regulator, the Cayman Islands Monetary Authority (CIMA), 33 licences have been issued for captive insurance companies as of September 30, 2016. That’s already more than last year, when there was a total of 22 new licences for 2015. With two of the busiest months for registrations still to go, the captives sector is set for further growth and I thank all the captives that have selected Cayman as their domicile of choice.

I thank CIMA for standing with us as a key partner, providing effective regulatory oversight that meets global standards. I would also like to congratulate CIMA on dedicating additional resources to monitoring the captive insurance industry. The appointment of the new head of the insurance supervision division, Ruwan Jayasekera; the appointment by cabinet of an additional director, Garth McDonald, with insurance experience on CIMA’s executive board; and the hiring of additional insurance division staff all point to the importance our regulator and the Cayman Islands government place on the captive insurance industry.

CIMA’s partnership with government includes its pivotal role in our re/insurance initiative that will retain a cadre of the best financial services professionals across all sectors, including captives.

Our goal is to draw more business with a physical presence in our jurisdiction. Indeed, Cayman has a lot to offer with a healthy economy and a developing infrastructure being enhanced by multiple capital projects. For instance, the Owen Roberts International Airport has completed Phase I of its redevelopment. Construction of Phase II and expansion of the terminal by McAlpine is expected to be completed in summer 2018.

"Cayman is poised to maintain our international ranking due to our efforts to preserve our valued relationship with members of the captive insurance industry."

Work also continues on a modern cruise berthing and cargo port. WF Baird & Associates, which completed the Environmental Impact Assessment and conceptual design, provided a draft report of alternative layouts for the facility that repositions the piers into deeper water and reduces dredging and environmental impact and accommodates four of the largest class of cruise vessels. Royal HaskoningDHV received the tender from government to conduct civil engineering design works for the proposed cruise berthing facility. The contractor prequalification process is projected for December 2016/early January 2017, with the tender process for construction projected for March 2017.

To maintain Cayman’s efficiency and competitiveness, we are working with CIMA on our requirements and insurance fee regime, to ensure that they are in line with market rates.

For example, industry feedback indicated that the class B(iii) insurer licence offering is inadequate due to its diminutive size. We listened and created a new licence subcategory, namely the class B(iv) insurer licence, to encourage small to medium open-market reinsurance companies to form their companies in the Cayman Islands. The class B(iv) insurer licence also is intended to act as an incubator for future class D licensees.

Coupled with a new set of fees, we believe the B(iv) offering can make captives as a whole more competitive and, undoubtedly, more compelling for your international clients—particularly as captives are internationally recognised as safe investment vehicles.

New support for companies

We also hope to further attract more business to these islands by ensuring our legislation meets industry needs and adding to our insurance legislation framework in order to facilitate innovation.

An important piece of recent legislation is the Insurance (Portfolio Insurance Companies) Regulations, 2015, which support the use of portfolio insurance companies (PICs). Available for use by the international insurance market, this new product ranks with other jurisdictions, including the Delaware Series Limited Liability Companies (LLCs).

The attractiveness of PICs rests in their ability to efficiently and effectively complement a long established and proven structure—namely, segregated portfolio companies (SPCs).

PIC regulations allow an SPC insurance company to incorporate one of its cells by establishing a PIC under it. Once the PIC is registered with CIMA, it can write insurance business in its own name, as a separate legal entity—an exempted company limited by shares.

PICs then can contract with other cells and other PICs within the SPC, which facilitates reinsurance, quota sharing and risk pooling. While the PIC is controlled by voting shares by its SPC, participating shares can be issued to those with an economic interest in the PIC; and a PIC can have a board of directors different from that of the controlling SPC, providing for greater governance flexibility.

Importantly, a PIC is a separate legal entity for US tax purposes, including having its own federal tax identification number. Furthermore, a foreign captive can redomicile to Cayman as a PIC, where it may not be of sufficient size to operate as a standalone captive.

Another important initiative is the enactment of our LLC legislation. Cayman LLCs cater to fund operators who require the flexibility of capital accounts within a vehicle that has a separate legal personality, and allow for more diverse corporate structures and joint ventures. They’ll also provide a closer match of the legal framework between onshore and offshore investors, and this may result in cost efficiencies for industry.

The introduction of LLCs will give your international clients further incentive to do business through Cayman due to their flexibility. While similar to a Delaware LLC, a Cayman LLC has the advantages of certain features of a Cayman exempted limited partnership, as well as a Cayman exempted company.

LLCs and PICs are the result of Cayman’s characteristic, collaborative approach to financial services. Government and industry worked closely together on both pieces, and CIMA provided appropriate regulatory input on PICs.

As we look to the future, we know that global changes are on the horizon. Indeed, as members of the open market, we recognise that events happening externally to our Islands—such as the new US administration and the implications for the Patient Protection and Affordable Care Act, as well as rapid global regulatory change—could affect us. Yet, Cayman is poised to maintain our international ranking due to our efforts to preserve our valued relationship with members of the captive insurance industry, just like you.

Cayman’s mission is to remain the first choice for captives by working with you to provide a responsive and competitive jurisdiction for your current and prospective clients. Through our continued partnership, we can continue to attract business to these shores, improve our offerings, and ensure Cayman retains its place as a premier choice for captive insurance.