(CNS Business): Following the licensing of 38 new captive insurance companies last year, the Cayman Islands Monetary Authority (CIMA) anticipates that this area of the financial services sector will prove lucrative for the jurisdiction during 2012, despite industry challenges. The government’s regulator said that 2012 has begun with promise, too, as CIMA’s Insurance Division processed five new captive licence applications last month and in the first week of February another four applications were in the initial stages of processing. Given the current market conditions, the choice of domicile has become critical.

“While conditions in the international marketplace have been challenging to the formation of captives over the past several years, there continues to be solid interest in the Cayman Islands that translated into a 52% increase in captive formations in this jurisdiction in 2011,” said CIMA’s Managing Director, Cindy Scotland.
Globally, the captive market has been soft. Among the factors that have placed a downward pressure on captive formation across jurisdictions since the credit crisis have been the generally low investment returns for all types of investments and fears of another recession, coupled with the availability of commercial insurance at very low rates.

Gordon Rowell, Head of Insurance at CIMA, said this has dampened corporate sponsors’ motivation to take on the expense of setting up a captive in order to self-insure.

“Nevertheless, industry players know the value of captives as a major part of organisations’ risk management strategy. The industry has established a track record for robust risk management and in recent years captives and insurance managers have been quite efficient at maximising value despite the soft market,” he added.

Scotland explained that given these factors, captive sponsors are seeking the greatest efficiencies and the choice of domicile has become important in achieving that.

“The Cayman Islands has fared well because of a number of advantages. Captive participants have told us that in addition to the expertise of local service providers who have built up specialisation, especially in the area of health care captive structuring, the jurisdiction is very cost competitive, the process for establishment of the captive is efficient, and the legislative and regulatory framework is stable and robust.”

CIMA ended 2011 with 739 captives and 632 segregated portfolios and continued as the leading jurisdiction for health care captives.  This was the primary line of business for 256 companies (35% of the total).

Workers’ compensation remained the second largest line of business with 161 companies (22%) providing this as their primary type of risk insured. The 739 active captives as at 31 December comprise the following: 419 pure captives (57%), 124 segregated portfolio companies (17%), 75 group captives (10%), 52 association captives (7%), 36 special purpose vehicles (5%), 32 open market insurers (4%) and one rent-a-captive.