Industry award highlights Cayman’s captive record

| 07/09/2015 | 0 Comments

CNS Business(CNS Business): A major industry accolade for the Cayman Islands captive insurance sector has highlighted the strengths of this jurisdiction as a domicile for insurance and alternative risk transfer products. Cayman was recently named the ‘Top Offshore Domicile’ in the 2015 US Captive Service Awards, organised by Captive Review magazine. Traditionally known for being the second largest offshore captive domicile, behind Bermuda, the Cayman Islands has built its reputation as the number one offshore jurisdiction for healthcare captives.

“We are delighted that Cayman has again received this prestigious honour,” commented Kieran O’Mahony, chairman of the Insurance Managers Association of the Cayman Islands (IMAC). “This award acknowledges Cayman’s significant and sustained efforts in ensuring it offers progressive, leading edge legislation and sophisticated solutions to captives and the alternative risk transfer universe.”

IMAC said that in winning this award, Cayman has demonstrated its ongoing commitment to the captive sector, by passing new Portfolio Insurance Company (PIC) legislation at the start of 2015, while the judges were also impressed by Cayman’s innovation and the jurisdiction’s expertise in healthcare captives.

Captive insurance, where corporations set up their own insurance companies to manage their own risk — bypassing traditional insurers — really took off as an industry in Cayman in the 1970s and 1980s. High insurance rates, in particular for medical malpractice in the US, meant that hospitals and healthcare providers were unable to obtain commercial insurance. As they formed captive insurance companies in Cayman, where laws were enacted to facilitate business, Cayman developed extensive expertise in the health care sector. Since then the industry has grown to become a key part of the offshore economy, with captives covering such risks as property, workers compensation and professional liability.

Globally, including onshore domiciles, there are now over 5,000 captive insurance companies, according to industry ratings agency AM Best.

Despite the soft market conditions and a competitive global market, Cayman’s captive industry has grown in size over the past three years, shaking off the impact of the sub-prime crisis. In a soft market, global insurance companies are unable to increase premiums and while this environment is typically associated with low rates of captive formation, CIMA’s stats show that captives licensed in Cayman increased from 738 in 2010 to 760 in 2014. This positive trend brings the record high of 780 licenses (achieved in 2009) back into focus. In Bermuda the picture is more in line with the weaker wider market as captive licenses edged lower from 845 in 2010 to 831 in 2013.

“In the current soft market Cayman is still remaining strong and very much holding its ground,” said JS de Jager of CSI International and a member of the IMAC Executive Committee. “All the managers and service providers in Cayman are continuing to deliver quality products and services and working very closely with the local regulator and other private sector bodies that support the industry. We’ve seen a fair few mergers of various groups as a consequence of the Affordable Care Act in the US (Obamacare) and also due to the current soft market but those mergers further strengthen the groups who will then have bigger numbers and open more possibilities due to the larger network.”

While Bermuda is often associated with being Cayman’s main competitor in the captive market, there is also competition onshore, as more US states enact captive legislation. Over half of the 50 US states now have captive insurance legislation in place, mirroring offshore jurisdictions, with some of the most popular states being Vermont, Hawaii and South Carolina.

“There is always strong competition from the traditional offshore captive domiciles but with innovative legislation and the depth of our local service provider network, Cayman being such a large global financial centre, is in a strong position going forward to further strengthen our reputation as the domicile with the most leading edge and innovative captive legislation,” de Jager added. “Competition from onshore domiciles is ever increasing with more and more US states getting into the captive sector but that serves only as motivation for Cayman to buckle down and work even harder to stay on top of the captive insurance services game.”

There are 29 captive insurance managers operating in Cayman at present, with the industry generating US$12.4 billion in premiums and total assets of US$54 billion. In addition to the managers, the captive industry provides an important domestic line of business for the law firms here.

Cayman Islands law firm, Solomon Harris, took the top prize in the ‘Offshore Law Firm’ category and was recognised for the important role the firm played in Cayman’s innovative new captive legislation. Solomon Harris insurance partner, Paul Scrivener, was commended for his involvement in the new PIC legislation.

Hailed as the most important development for Cayman’s insurance sector since the Segregated Portfolio Company in 1998, which allowed a single insurer to ring fence separate portfolios, known as cells, the PIC takes the law to the next level, giving each portfolio a separate legal identity. Each cell is therefore able to transact with another and undertake activities on a joint basis, in areas such as risk pooling and purchasing reinsurance, providing significant commercial flexibility.

“I was delighted to see the Cayman Islands recognised as the leading offshore captive domicile and the credit given for its innovative PIC legislation,” Scrivener said. “From a personal perspective, having been closely involved in its development with the Cayman Islands Government, I was very pleased to see this legislation brought into force. In terms of the award made to Solomon Harris, we are proud of the endorsement of the quality of our insurance team. We have managed to win this award three times in the past four years which I think is great testimony to our strong brand in the insurance sector.”

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Category: Finance, Financial Services

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