The evolution of investment rules for Cayman captives
A year on from the Cayman Islands Monetary Authority (CIMA) bringing in a new rule on the investment activities of insurers, a panel at the 2024 Cayman Captive Forum provided a platform for industry leaders to discuss the critical role of investment rules in shaping the operations of insurers.
The panel featured Gamuchirai Usai, deputy head of insurance supervision at CIMA; Steven Lill, vice president at USA Risk Group; and Darren Treasure, executive director at London & Capital.
Providing background, Usai explained: “Although referred to as a ‘new rule,’ it has been effective since February 2023. It aligns with the International Association of Insurance Supervisors' ICP 15, ensuring global consistency in investment activity regulation.” The update replaces the previous Statement of Guidance (SOG) on asset management, addressing gaps identified during a self-assessment to enhance alignment with international standards.
The rule applies to insurance companies and portfolio insurers licensed by CIMA, emphasising the principle of “nature, scale, and complexity” in tailoring compliance. “One size does not fit all,” Usai stressed, highlighting that the rule’s flexibility ensures it remains relevant to entities of varying sizes and structures.
Usai outlined five critical areas targeted by the rule:
Asset-liability management: Insurers must ensure their investment strategies adequately address the liquidity and solvency requirements needed to meet claims.
Portfolio diversification: Investments must spread risk across various assets to protect against volatility.
Risk management and controls: Strong internal controls are required to monitor and mitigate investment risks.
Regulatory integration: Compliance must extend beyond the rule itself to include all related legislation.
Transparency: Emphasis is placed on clear reporting and oversight mechanisms.
Lill added: “The primary goal is to design investment policies ensuring funds are available when claims arise. This requires assessing solvency needs, diversifying portfolios, and managing conflicts of interest, especially when assets are handled by related parties.”
One notable change is the requirement for B(iii) licensees to establish investment committees. Treasure elaborated: “The rule now mandates the formation of an investment committee for B(iii) licences, underscoring the need for robust governance.”
On the committee’s composition, Usai clarified: “At least one board member should sit on the committee, with the flexibility to include external investment experts.” Meetings’ frequency depends on the insurer’s nature, scale, and complexity, with a minimum of one annually for smaller entities.
This governance structure ensures thorough oversight. “Committees must document their deliberations to maintain an audit trail,” Usai stated, highlighting the importance of accountability.
The panel discussed the practical aspects of complying with the rule. Treasure noted that insurers might face increased demands on resources and time. “From forming effective committees to providing training for members unfamiliar with investment intricacies, there’s a learning curve,” he said.
Asset managers are expected to provide detailed reports and attend committee meetings to ensure alignment with the insurer's objectives. “It’s about striking a balance between transparency and operational efficiency,” Lill remarked.
As the Cayman insurance industry continues adapting to these regulatory changes, collaboration between insurers, regulators, and stakeholders will remain key. Treasure summarised: “The updated rule strengthens the industry’s foundations, ensuring insurers are better equipped to manage risks and fulfil their obligations.”
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