CIMA sees good potential for captive growth in 2012

After licensing 38 new captive insurance companies during 2011, the Cayman Islands Monetary Authority has noted “a good start” for captive formations in 2012, announcing it anticipates net growth this year.

In 2011, the number of captives licensed by CIMA dropped to a seven-year low of 720 in the first quarter before recovering to 739 at the end of the year.

“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 per cent increase in captive formations in this jurisdiction in 2011,” said Cindy Scotland, managing director of the Cayman Islands Monetary Authority.

Growth during the last three quarters of 2011 has continued in the first weeks of 2012, according to CIMA. In January, CIMA’s Insurance Division processed five new captive licence applications and in the first week of February another four applications were in initial stages of processing.

Since the financial crisis, the market for captives has been soft globally due to generally low investment returns and comparatively low commercial insurance rates.

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“In some cases this has dampened corporate sponsors’ motivation to take on the expense of setting up a captive in order to self-insure,” said Gordon Rowell, head of insurance at CIMA. “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.”

Mrs. Scotland added, “Given these factors, captive sponsors are seeking the greatest efficiencies and the choice of domicile for a captive becomes critical in achieving this value. 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,” Mrs. Scotland said.

Cayman remains the leading jurisdiction for healthcare captives with more than one third of all captives operating in healthcare as their main line of business. This was followed by workers compensation schemes (22 per cent) as the primary type of insured risk.

The 739 active captives at the end of 2011 consisted of 419 pure captives, 124 were segregated portfolio companies, 75 group captives, 52 association captives, 36 special purpose vehicles, 32 open market insurers and one rent-a-captive.

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