From where we stand – a year in review and a year ahead

Everyone loves a good news story and once again this story is from the Cayman captive insurance industry. Despite an ongoing soft insurance market in the United States, 2012 was an exceptionally kind year to the Cayman Islands. 

In the past 12 months, the jurisdiction welcomed some new insurance managers; received a very healthy number of applications for new captives; saw the implementation of the new insurance law and upheld its standing as hosts of the world’s largest captive conference, breaking all previous attendance records with 1285 attendees.

Many economic analysts and industry observers are predicting that the going will continue to be tough in 2013 for the world’s larger economies, particularly the US and Europe. 

In the captive insurance market, this may make for some toil ahead, first, because it will be difficult to justify the concept and expense of self-insurance when there are viable commercial options available; and secondly, because investment gains above the rate of inflation are almost unheard of. 

But the plethora of solid insurance managers in Cayman are working hard to provide value to captive holders and are helping corporate boards to identify and achieve overall risk management objectives, which means that the existing market players will remain engaged.

Despite any impending economic gloom, Cayman is likely to remain a popular jurisdiction for captive formations, which, including the segregated portfolio companies, is close to 1,500 entities. On top of the 52 licenses issued in 2012, there were an additional 15 applications received, which will be issued at the beginning of 2013. 

This continued momentum is attributable to a combination of our sensible legislative framework, the relationship between IMAC and the Cayman Islands Monetary Authority (CIMA), together with a harmonised regulatory environment.

Although these have been factors for many decades, IMAC is now reaping the benefits of effective strategies in the form of captive growth, both in terms of number and size, however it will be important to maintain all elements of competitive advantage over alternative jurisdictions, including fees.  With the Cayman Islands Government still experiencing budget pressures, IMAC and other industry bodies continue to work to protect against any increases in captive fees.

The Cayman Islands has been working hard to nurture this growth spurt through upgrades and development of legislative infrastructure.  The major regulatory initiative in 2012 was the anticipated introduction of a new and updated Insurance Law.

IMAC and CIMA spent a lot of time examining the pros and cons of existing regulatory frameworks and in particular, how they impact captive owners. After a long period of consultation between industry and the regulator, we feel that our Law is the most appropriate standard for present and future captives whether in the areas of solvency, operations or governance.  Future plans for development include the probability of introducing a framework similar to incorporated cell legislation.

On the global regulatory front, there is still a fair amount of uncertainty, which again is likely to remain as much of the proposed regulatory frameworks have yet to be agreed. 

The biggest threat is, as it is always, that an inappropriate global regulatory standard is determined for captives, where regulatory standards meant for the retail market are inflicted upon sophisticated self-insurers.  CIMA continues to actively participate and provide input and feedback in this arena.

There are some 5,000 captives globally and Cayman remains the second largest domicile in the sector. 

Although it is difficult to be bullish about growth when surrounded by continued economic uncertainty, we can be confident that as the Cayman Islands continues to modernise legislation, making it more appealing for wider insurance industry participation, and to feed the healthy regulator-to-industry relationship that creates a constructive business environment, more captive and reinsurance business will be encouraged to find its way to this jurisdiction. 

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