Growth with purpose

About IMAC 

Read our article in the Cayman Financial Review Magazine, eversion 

One of the most disguised dangers to any company or organisation is growth for growth’s sake. Corporate graveyards are littered with companies that grew fast, doing all things for all customers and never really finding their focus or a unique way of delivering that focus to an identified and willing market.  

The same could be said for industries – think of the dotcom bubble.  

George Harrison sums it up perfectly as he paraphrases Alice in Wonderland’s Cheshire Cat: “If you don’t know where you are going, any road will take you there”. 

There is a lot to be said for taking considered steps to get to a desired place, even if those steps do not cover the easiest or most direct route.

The Cayman Islands captive insurance industry is an impressive example of a steady growth model, built over decades, leveraging off of good timing, smart innovation and some brave but unprecedented moves, to develop a world class insurance domicile.

From its early beginnings in 1974, the industry has experienced solid, steady growth, and has continued to do so, even through the most tumultuous market conditions seen in our lifetimes.

Despite down markets and gloomy economic forecasts, Cayman’s captive insurance industry has continued to thrive and is steadily and confidently chasing down Bermuda to take the lead as the world’s largest captive domicile.

The latest statistics reported by the Cayman Islands Monetary Authority (as at 30 June 2012) are impressive and support any prescient claims of Cayman’s upcoming pole position. The total number of captives domiciled in Cayman has climbed to 731 with total premiums registering at US$8.8 billion and total assets under management of US$78.9 billion.

The latter number is particularly significant when contrasted against the US$57.4 billion in AUM reported at the end of the second quarter 2011. In fact, more captive applications were received by CIMA in the first two quarters of 2012 than in the whole of 2011, indicating that the market conditions for Cayman captives are favourable and that the groundwork that has been done over the past decades is bearing fruit by the bushel.

There are a few market drivers that are directly attributable to trend of captives seeking the safety of a reputable jurisdiction with a long history of trust and sensibility.

The first driver relates to the timing issue. Cayman has been building its reputation as the world’s leading domicile for health care captives and catastrophe bonds for decades, continually modernising legislation and regulation in a business-friendly manner based on a considered cost/benefit analysis. The open dialogue between CIMA and industry has strengthened the regulatory platform.

Both sides understand that the competitive and mobile nature of the captive and reinsurance businesses requires that the cornerstone of the industry must be a philosophy of relevant, risk-based and sensible regulation.

The domino effect resulting from the security of a strong regulatory and legislative infrastructure, a reputation for excellence and a substantial history based on trust, is Cayman’s ability to continue to attract the world’s best talent and therefore has an enviable cadre of professionals – managers, lawyers, auditors, bankers and support staff that work to keep Cayman ahead of the curve.

In the international arena, there are two major issues that are affecting decision-making for captives – either by causing many companies to consider a captive for the first time; or for those with existing captives, to carefully reconsider their domicile decisions, hastening the process of elimination and leaving Cayman as the most viable option.

First, in the United States, the healthcare industry is increasingly worried about the effects of ‘Obama-Care’ and there is an increased interest in the establishment of captives to hedge against possible negative effects of this proposed legislation.

The second major influence is that of international regulation. CIMA has taken a view on the proposed European insurance regulation Solvency II that has been considered unpopular in some circles, but in reality is reasoned and cautious.

Rather than negotiating ‘carve-outs’ for captives in a piece of legislation that is not only focused on the supervision of the retail market, but treats all types of insurance products as if they were identical, CIMA has been adamant that it will wait to see what the final version of Solvency II is and what its potential impact would be on Cayman’s valuable captive industry before it makes any commitment to its adaptation.

The captive insurance industry contributed more than $84 million to the Cayman Islands’ GDP in the last year alone: this is business that no one wants to see leave the jurisdiction.

Despite taking the ‘wait and see’ approach with Solvency II, Cayman has continued to innovate in order to be more attractive to other segments of the insurance industry. At the time of writing, the Insurance Amendment Bill has been passed, opening the gateway to the further development of the reinsurance market. This bill formally recognises the different types of insurance entities and has instituted different regulatory levels to each – again following the risk-based approach that has made Cayman a preferred jurisdiction for international business.

Reinsurance companies have already found the Cayman Islands, as Cayman’s dominance in the investment and hedge funds industry makes it an ideal location for capital raising, and the high quality human capital facilitates these types of transactions. This new legislation will provide further stimulation for this segment, as it recognises special purpose vehicles for catastrophe bonds and insurance-linked securities. The Cayman Islands Stock Exchange has more than 100 catastrophe bonds and series listings, growing impressively from its first cat bond listing in 2007.

The Exchange’s specialist listing rules have been crafted specifically to support the jurisdiction’s financial services industry and its ambition to attract insurance linked and other captive and reinsurance business.

All of this market activity has kept IMAC on its toes this year and will provide great fodder for discussion at the annual Cayman Captives Forum, taking place 27-29 November 2012 at The Ritz-Carlton, Grand Cayman. In-depth analysis will be undertaken by leaders in the industry from around the world on topics such as insurance-linked securities; the use of segregated portfolio companies; and structural, tax and regulatory issues regarding pooling arrangements among captives.

The 2011 Forum welcomed almost 1,300 delegates, making it the world’s largest captive conference and the 2012 event is on track to exceed this target yet again.

The future for the jurisdiction’s industry is bright. IMAC is fully engaged with market development. CIMA is actively shaping the global international regulatory landscape, and the industry as a whole continues to uphold its position as a credible, well-regulated, transparent jurisdiction of knowledgeable experts. What has in the past been a stronghold for the captives industry, will be welcoming the newest entrants of the reinsurance market.

To find out more about the captives industry in the Cayman Islands, visit www.caymancaptive.ky 

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