Cayman Islands: The Risk Renaissance

The Cayman Islands captive insurance market has enjoyed two boom periods since the initial medical malpractice crisis of the Seventies put us on the map as a captive domicile. The first was in the mid 1980's, and the second, which for the reasons discussed below is more significant in the long term, began about 4 years ago and continues as I write.

In 1990, before the present boom, the Insurance Supervision Department of the Cayman Islands Government recorded the establishment of just 20 new licensees. Powered by the captive market, but assisted by the rise of catastrophe bonds and annuity products, discussed below, that figure has increased dramatically. In 1998 52 licences were issued, in 1999 37 and in 2000 another 46, to total 517 licensees at last year end.

What has caused this turnaround? Undoubtedly the main thrust has been establishment of captives, both wholly-owned and association, the reasons for which are as follows:

  1. Most immediately, the US insurance market has hardened over the past four or five months, particularly in the professional liability area. The recent significant decline in equity markets has resulted in investments alone being unable to support risk liabilities. This, combined with poor pricing of insurance products, has resulted in a surge in the establishment of professional captives.
  2. Captives have at last found their day. For too long they were regarded by the market as a good idea, but novel and untested. Historical inevitability has played its part here, and slowly but surely the image of the captive has altered in the mind of the insurance market so that at last it has become "respectable". Now captives are an accepted part of a risk manager's portfolio, as critical in their own way as commercial market policies. A manager's ability to provide captives is both accepted and expected in the current market. Further, greater ingenuity has been shown recently by providers with captives in moving away from traditional lines of risk and diversifying into new risk areas.
  3. The image of the Cayman Islands as a financial center has undergone a seismic shift in the past ten years. With a government dedicated to promoting a highly skilled and responsible market, respected worldwide, the Cayman Islands have become the first choice jurisdiction in which to establish an offshore captive. And onshore, particularly in the United States, another mindset has gradually altered: formerly, health-care institutions and care-givers, sensitive of their image, were wary of establishing captives offshore. Gradually, however, that has changed and it is perfectly normal now to see local health service providers, nursing homes, etc. from the United States establishing wholly-owned captives in the Cayman Islands.
  4. Every effort is made by the Cayman Islands to pass legislation that tracks the demands of the market. Recently our Companies Law was amended to provide for so-called "segregated portfolio companies", ideal for the rent-a-captive market by offering attractive isolated risk options to the insurance manager and its clients.
  5. Perhaps most important of all, the Cayman Islands Monetary Authority itself provides a practical but highly focused regulatory framework designed to allow the market to thrive subject to oversight that is every bit as exacting as that provided onshore. The main difference between onshore regulation and regulation here, however, is simply the "personal touch" of the Insurance Supervision Department, which managers and clients alike find attractive and helpful. Personal meetings with the regulators are encouraged. Thus, more likely than not, the directors of licensed insurers know their regulator here personally. And close contact is maintained between the regulators and the local insurance managers so that instant communication with the regulators may be achieved, through those managers, by every captive licensed in the Cayman Islands.

But the licensing of captives in Cayman tells only part of the story. In addition to captives, the Insurance Department has encouraged two further products to develop:

Catastrophe Bonds, pursuant to which insurers and insureds have used structured financial products to place cover by accessing the capital markets rather than through the traditional reinsurance or insurance markets. In the typical catastrophe bond transaction an "orphan" Cayman Islands special purpose company ("SPC") owned by a Cayman Islands trust company as trustee of a charitable trust is formed and licensed as a restricted insurance company. As a restricted insurance company no particular minimum net worth requirement is imposed which has the beneficial effect in keeping transaction costs low. The SPC enters into a reinsurance agreement, swap transaction or similar contract, typically with an insurance company, pursuant to which periodic payments are made by the counterparty and the SPC is obligated to pay a lump sum in certain eventualities (e.g. an earthquake of a particular magnitude in a particular location). The potential payment obligation of the SPC is secured by the deposit of collateral with a trustee. In order to fund its obligations the SPC issues notes in the capital markets, the terms of which pass through the periodic payments made to the SPC by the counterparty but whose principal amount is reduced in the event the SPC must make payments to the counterparty upon the happening of the relevant "catastrophe" event and the principal of the notes is therefore at risk.

The emergence of these new products often highlights difficult conceptual issues as to whether or not the particular transaction constitutes insurance business (and hence is subject to regulation) but the Insurance Department of the Cayman Islands Monetary Authority has proved responsive when considering the issues and the Cayman Islands, already one of the leading jurisdictions for capital markets transactions and structured financial products, is a natural domicile of choice for this new category of business.

Annuity And Life Products. Over recent years, a number of Cayman Islands structures have become well established for offering protected fixed or variable annuity and life products to both US and non-US individuals. These structures have been put together by not only the household-name life insurance companies but also by investment brokers (as another vehicle for their investment management services) and, increasingly, by specialist US tax lawyers with US and non-US high net worth private clients.

Typically, a Cayman Islands annuity insurance company is established. Many of these take advantage of the "segregated portfolio companies" provisions of the Cayman Islands companies’ legislation referred to above, so the company can divide its relationship with each customer or policy into statutorily protected "cells".

Fixed and variable annuity and life contracts with off-shore insurance companies are perhaps one of the few remaining legitimate tax planning uses of off-shore financial centres by US citizens and taxpayers. The lower running costs of a Cayman Islands insurance company (which is in turn reflected in the proceeds of the policies) offer a competitive advantage over on-shore products for US taxpayers.

As can be seen, the insurance industry in the Cayman Islands is flourishing. Captives continue to be established here for reasons mentioned above, and the nature of risk itself is that it continues to spawn new capital markets and other financial products. The regulators and managers here do everything they can to continue to attract both traditional and innovative risk business while, in the case of the Cayman Islands Monetary Authority, maintaining an effective and rigorous regulatory oversight.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions