Since the early 1970s, the Cayman Islands have been blazing the trail for the development of the captive insurance and the alternative risk transfer industries. By providing robust yet familiar corporate structures for captive insurance companies, enacting progressive legislation and implementing risk-based regulation, the Cayman Islands quickly became a leading domicile of choice for captives as well as other corporate insurance products, including insurance linked securities.
Cayman has continued to innovate, modernising its legislative and regulatory infrastructure and responding to market demands in a business-centric, yet appropriately governed environment. The most recent legislative developments has been the implementation of the Portfolio Insurance Companies (PIC) Regulations (2015), which reinforce and enhance the insurance statutory framework by providing greater flexibility and do so in a robust and efficient manner. Instead of enacting a whole new swathe of legislation, Cayman wisely chose to amend its long established and widely understood Segregated Portfolio Company (SPC) legislation. This gives to Cayman all the beneficial characteristics of Incorporated Cell Company legislation but none of the potential uncertainty or the law of unintended consequences, which can be associated with enacting "new" legislation.
Cayman's regulatory model is noteworthy as it provides regulation based both on the type of structures utilised as well as the composition of the given risk profile. Transparency is paramount, providing a perfect balance between heightened oversight for companies with higher risk profiles and a more efficient approach for those vehicles that are predominantly investment in nature.
There are more than 5,000 captive insurance companies in the world, up from roughtly 1,000 in 1980, according to the AM Best Captive Centre. The Cayman Islands remains the second-largest captive domicile in the world (Cayman, Bermuda and Vermont being the most well-known) out of the more than 70 jurisdictions now providing captive insurance domiciliation. Cayman has continued to fare comfortably in this increasingly competitive marketplace because of its long and successful history and its extensive level of experience and expertise. The healthy, but arms-length industry-to-regulator-to-legislators relationship fosters innovation and timely implementation of leading-edge products that answer market demand.
To be more specific, as at 31 March 2015, there were 760 Class B, C and D insurance companies under supervision of the Cayman Islands Monetary Authority with pure captives and SPCs representing the lion's share of these, 414 and 139 respectively. Total assets held were reported at US$54 billion and total premiums at US$12.4 billion.
Healthcare captives are particularly prominent and Cayman has been the leading jurisdiction for this sector of business since Harvard Medical School selected Cayman over Bermuda as its domicile of choice back in 1976. Thirtyfour percent of Cayman's captive insurance companies are healthcare related and medical malpractice liability is the largest line of business underwritten. That being said, Cayman has developed other areas of business including workers' compensation, life, professional and product liability, property and a host of other categories, including some that are non-traditional, such as environmental pollution, cyber and terrorism risks.
The Insurance Managers Association of Cayman (IMAC), the industry body with responsibility for promoting the jurisdiction's captive insurance industry in its target markets, is actively developing previously untapped markets, including Canada and Latin America, where there are numerous benefits for companies in these regions to use a Cayman-domiciled captive insurance company, in addition to those traditionally used by American companies.
Produced with kind assistance from the Insurance Managers Association of Cayman (IMAC).
Originally published in Cayman Finance Magazine, 2015-2016, Issue 2
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