Cayman’s captives continue impressive growth

Cayman Finance

Read our article in the Cayman Financial Review Magazine, eversion

Since 2000 the number of captives in the Cayman Islands grew by over 43 per cent and current statistics seem set to put that impressive growth to almost 50 per cent by the end of 2011.

In what he termed “impressive growth through quality” in his message in the Cayman Captive magazine to the over 1,200 attendees at the Insurance Managers Association of Cayman’s 19th annual Cayman Captive Forum held in November 2011, Chairman of Cayman Finance Richard Coles noted the impressive expansion of the captive insurance industry in the Cayman Islands over the past decade and opined that the sector is poised for continued growth in the future.

“The quality and consistency of IMAC and the Cayman Captive Forum over almost two decades mirrors this jurisdiction’s approach towards maintaining the Cayman Islands as a leading choice for domiciliation of captives. Balanced regulation which meets international standards and high quality professional infrastructure remains top of the list of reasons why year after year, captives continue to choose Cayman over other jurisdictions,” he said.

Since 2000 the number of captives in the Cayman Islands grew by over 43 per cent and current statistics seem set to put that impressive growth to almost 50 per cent by the end of 2011. The industry has also quickly recovered from the drop in the number of captives in 2010 as a result of the global recession and is widely expected to be back to those record levels at the end of this year when official statistics become available.

Coles said Cayman had maintained its stability during the worldwide financial crisis and the captives sector could build on this in the future:

“The stability displayed by the captive insurance sector during the crisis reflects what has occurred in other segments of the Cayman Islands financial services industry, with hedge funds showing impressive growth and having felt very little negative fallout during the crisis. The assets in our banking sector remain equally strong. Cayman has maintained its position as one of the world’s top banking domiciles and was recently ranked number one in the Specialised Financial Centres category for the third year in a row by the highly respected Bankers ranking of international financial centres.”

He also noted the importance of Cayman’s stable regulatory environment for the captives industry, saying, “The Cayman Islands continued recognition by the OECD Global Forum as a transparent jurisdiction is supported by numerous positive reviews of our regulatory and international cooperation over the years and this aspect is also an important feature of the quality of the Cayman Islands product from a captive insurance perspective and more generally as one of the world’s leading international financial centres.”

The Cayman Islands Monetary Authority report on the state of the Cayman captive insurance sector also underscored Coles’ view of a healthy, robust and continuously growing industry.

Third quarter figures from CIMA showed that formations were up 93 per cent. CIMA licensed 29 captive insurance companies in the first nine months of 2011, 14 more than during the same period in 2010. The total number of captives in the jurisdiction at 30 September 2011 stood at 730.

Demonstrating a new benchmark, total premiums as at 30 September were reported at US$9.6 billion, the highest recorded in CIMA’s history. This compares to US$8.6 billion as at 31 December 2010 – an increase of 12 per cent. Total assets, as of 30 September, 2011, were reported at US$58.3 billion, compared to US$57.9 billion as at 31 December, 2010.

In a press release announcing the third quarter figures, CIMA’s Managing Director Cindy Scotland, commented:

“This 93 per cent increase in captive formations and close to $10 billion in premiums are indicators of the health of our captive insurance industry, despite the generally soft international insurance market conditions. In all of 2010 there were 25 new captives formed, so for our 2011 numbers to already be at 29, and with new applications pending, we anticipate this calendar year to reflect significant growth in new captives.”

CIMA’s third quarter numbers also showed that the Cayman Islands has continued as the leading jurisdiction for health care captives. As at September 2011, health care was the primary line of business for 256 companies (35 per cent). Workers’ compensation remained the second largest line of business with 157 companies (22 per cent) providing this as their primary type of risk insured.

According to the released CIMA statistics, the Cayman Islands’ captive insurance industry is composed mainly of companies insuring risks in North America. Premiums originating from North America accounted for 84 per cent of the Cayman market, followed by Europe at 3 per cent, Caribbean and Latin America at 2 per cent and the remaining global market at 11 per cent.

In terms of captive numbers, North America accounts for 90 per cent of the Cayman market, followed by Caribbean and Latin America at 3 per cent, Europe at 2 per cent and the remaining global market at 5 per cent.

At the recent Cayman Captive Forum, CIMA Head of Insurance Supervision Gordon Rowell outlined the strengths of Cayman as a jurisdiction for the captive insurance industry.

These included a track record of success and innovation, offering reinsurers a variety of options, offering a choice of insurance managers, having a strong support network, being cost effective with high standards and offering ease of doing business along with appropriate regulations and professionalism.

The Cayman Islands government has clearly identified the potential for growth in the captives sector, with Cayman Islands Premier McKeeva Bush announcing this as an area the country’s financial industry is looking to expand in, complete with regulatory changes as well as incentives for captives to domicile here.

Bush recently announced that regulations being finalised relating to the Insurance Law 2010, which was passed early in 2010, will include immigration incentives for the reinsurance industry, such as the introduction of ten year work permits for senior executives within the industry, reduced work permit fees and the introduction of a streamlined process that will speed up work permit applications for the sector.

The premier said the Cayman Islands needed to change its immigration regime and enact legislation to allow business to flourish and reiterated his commitment to doing so.

Bush said that the private sector sub-committees made up of insurance professionals tasked with reviewing the Insurance Law 2010 regulations have requested one final round of consultation, after which the regulations will be presented to Cabinet with the intention that they would be passed at the end of 2011 or early in 2012. Once the regulations have been passed, the changes to the Insurance Law will then take effect.

In the latter part of 2011, captive industry representatives from the Cayman Islands attended the annual convention of the Canadian Risk Insurance Management Society in Ottawa, following the signing of a tax information exchange agreement between Canada and the Cayman Islands in June 2011.

Clayton Price, current chairman of the Insurance Managers Association of Cayman recently said, “Having ratified the Tax Information Exchange Agreement between Canada and Cayman earlier this year, Cayman is poised to offer Canadian business a viable option to Barbados for forming captive insurance companies.”

The agreement is expected to offer a more tax-effective platform for Canadian owned companies that have foreign operating subsidiaries. It will exempt certain dividends payable to foreign affiliates resident in the Cayman Islands and distributed to their Canadian parent companies from relevant Canadian taxation, according to a note by law firm Conyers Dill Pearman.

In addition, it will make it easier for Canadian firms to form new Cayman companies, particularly captives and financing vehicles and to potentially move business to Cayman from other double-tax treaty jurisdictions.

“The TIEA puts Cayman in the same favourable position as Barbados,” said Price.

Before the TIEA ratification, Barbados had enjoyed an advantage for doing business with Canadian companies due to the tax treaty the country had concluded with Canada. While Bermuda has also ratified a TIEA with Canada at the same time as Cayman, Price also believes Cayman captives will offer a more efficient proposition due to Bermuda’s adoption of Solvency II.

With all of these factors including industry support, efficient and effective regulation, and government political will combined, plus a strong existing base to grow from, it seems that Cayman’s captive insurance industry is one segment of the Islands’ financial industry very well-situated for increased and ongoing expansion.