COMMENTARY

Cayman’s consistent growth in captive insurance

Monday,  January 9, 2006

As of 1 November, 2005, the number of active Class B Insurers (captives) in the Cayman Islands had risen to 724, writing annual premiums in excess of $6.6 billion and reporting assets in excess of $26 billion, a clear indicator of the continued success of the jurisdiction as a captive domicile.

At December 31, 2004 there were 694 active captives in the Cayman Islands, writing annual premium in excess of $5.6 billion dollars and reporting assets in excess of $22 billion.

The licensing of our insurance management companies over the past 12 months is also testament to the confidence in the jurisdiction’s ability to maintain its position as a leader in the captive industry.

Most notable for 2005 has been the launching of a major reinsurance company in Cayman, Green light Reinsurance, Ltd. This represents a significant step in the development of the jurisdiction as a “one-stop” insurance centre and provides an opportunity to attract new companies emerging in reinsurance market.

What fuels the success of the Cayman Islands as a leading captive domicile? Simply stated, this would be a sound regulatory regime, the unwavering support of the Cayman Islands’ Government and the Insurance Managers Association of Cayman, and the fact that, as a leading international financial centre, the jurisdiction has first-class financial services to back up the captive industry. 

The Insurance Division of the Cayman Islands Monetary Authority (the Authority CIMA), where staff currently has more than 50 years of combined captive regulation experience, uses the Core Principles of Insurance Supervision issued by the international Association of Insurance Supervisors and the Insurance Law (2004 Revision) (the Law) as the basis for its regulatory regime, which combines an off-site and on-site review and monitoring system. 

Other laws applicable to the captive insurance industry include The Monetary Authority Law (204 Revision), The Companies Law (2004 Revision) and the Proceeds of Criminal Conduct Law (2004 Revision). Copies of these Laws are available on the Authority’s website.

The Law allows for the issue of two categories of license for insurers not conducting business in the Cayman Islands: Unrestricted Class B licenses, which permit all types of insurance (once plan for such have been approved); and Restricted Class B licenses, which are available only where the risk insured are those of the company’s parent of members.

Unless the Authority has granted approval for a local office and the appointment of suitable staff, every captive insurance company is required by the Law to appoint a licensed insurance manager. 

The insurance manager, a clerical part of the success of a captive, is the person responsible to the Authority to ensure that any proposed captive is feasible and that the proposal shareholders and directors are fully aware that a captive is a long-term commitment, is a genuine insurance company, and will be required to be in compliance with the regularity regime.

As a vital link between the parties involved, it is important that priority is given to the appointment of an insurance manager to ensure efficiency of the application process. Thereafter, the insurance manager acts as a local presence of the captive.

Insurance managers always have a legal obligation to notify the Authority of any serious concerns they may have about the probity and financial soundness of the companies of which they act. 

In addition to encouraging all licensees to use good business practices in the operation of captive, the Authority has developed a regulatory system that ensures, throughout the life of the captive, that there is compliance with the regulatory laws. 

One of the most important aspects of this system is the regular meeting that takes place between the Authority, the insurance manager and representatives of the board of directors of each captive. These meetings initially allow for an understanding by the Authority of the reasons for establishing the captive and an initial understanding by the shareholders and proposed directors of the regulatory requirements within the jurisdiction. 

Following the licensing of the captive, these meetings provide an opportunity for the directors to discuss the operations of the captives and any plans for the future ventures, and an opportunity for the Authority to update the licensee on any changes to the regulatory regime.

The off-site review and monitoring system requires, inter alia, that the licensee files annual audited financial statements with the Authority and that prior approval is obtained for changes to the business plan of the captive.

The on-site inspection process is a valuable tool for providing the Authority with detailed knowledge of the captive and offers an opportunity to identify deficiencies and for the Authority to work with the licensee to ensure timely and appropriate resolution. 

In addition to full inspections, the Authority also conducts limited scope inspections that target specific areas. For example, in 2005, limited scope inspections have been conducted on all insurance managers, insurance brokers and domestic insurance companies to ensure compliance with anti-money laundering legislation.

During 2005, a working group composed of representatives from the Insurance Division, the Legal Division of the Authority, the Insurance Managers Associations of Cayman, the Cayman Islands Society of Professional Accountants, and the Law Society have been conducting a review of the Law. 

This review was driven by the results of various assessments of the financial services industry in recent years and the impact of Hurricane Ivan in 2004. It seeks to formalize practices in the Law to ensure compliance with international standards, while maintaining the reputation of the Islands as a good place to conduct business. It is anticipated that the revised Law will be gazetted in 2006.

Captives writing healthcare-related risks continue to dominate the Cayman captive market, with over 50 percent of those licensed in 2005 being healthcare-related. Cayman is well established as the domicile with the experience and expertise to ensure the success of these captives and works diligently to maintain this environment. 

However, there is undoubtedly experience and expertise in the Cayman Islands to accommodate captives writing all lines of business.

The opportunity to now expand into the larger reinsurance market, coupled with unwavering commitment of all service providers in the jurisdiction, bodes well for the Cayman Islands remaining the gold standard for captive domiciles.

Marylou Gallegos is the Head of the Insurance Division at the Cayman Islands Monetary Authority.

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