Cayman Islands Monetary Authority
Charting unknown waters
In a year that has been defined by the global response to the COVID-19 pandemic, Cayman’s captive insurance industry has demonstrated its resilience and flexibility, says the Cayman Islands Monetary Authority.
The COVID-19 pandemic forced many industries in the world, including the insurance sector, into unknown territory. With mandatory shelter-in-place orders issued by individual governments and the closure of all ‘non-essential’ services to restrict its spread, the pandemic led to operational resilience being tested among insurance companies and intermediaries.
Despite the challenges faced, the Cayman Islands’ insurance industry demonstrated not only its ability to adapt to circumstances but maintained an upward trend. This is a clear testament to the quality of the Cayman-based insurance companies and the supporting service providers, and the effectiveness of the jurisdiction’s robust regulatory framework.
The Cayman Islands maintained its position as the second largest domicile for captives and a dominant jurisdiction worldwide for healthcare captives, group captives and catastrophe bonds. Since the previous report, the jurisdiction has seen, and continues to see, an increase in reinsurance company formations, indicating that the jurisdiction is fast becoming an international hub for reinsurance business.
In addition to this, the Cayman Islands has maintained its leading position as an important global financial services centre, while providing professional services to various aspects of the industry, such as corporate services, banking, investments, fund management, and private and commercial trusts.
“The jurisdiction is fast becoming an international hub for reinsurance business.”
The international insurance sector
The Cayman Islands’ international insurance sector has not experienced a ‘grow at any cost’ scenario, in the context that the jurisdiction has never been compelled to consider controversial captive insurance structures or lines of business. However, this does not mean that we should become complacent.
It is important to remain proactive and plan ahead so that the fruits of development are preserved for years to come. With this in mind, the country as a whole has taken the stance that maintaining a quality-based growth strategy is essential to uphold its reputation as a responsible and respected jurisdiction. Through selective and quality-focused efforts, the jurisdiction maintained a healthy growth over the last year.
As of September 30, 2020, 20 new re/insurer entities were formed and licensed in the Cayman Islands. The total number of licensed insurance entities relating to the international insurance sector was 652 entities and 32 portfolio insurance companies. Cayman-based group captives also reported exponential growth in their programmes and membership.
The jurisdiction’s international insurance industry continues to perform well, with approximately 90 percent of insurance risk emanating from North America. The industry is also quite varied, with prominent risk types including healthcare, workers’ compensation, property and general liability. As of September 30, 2020, it has grown to report approximately $21 billion and $74 billion as total premium and total assets, respectively.
“It is encouraging to see traditional captives, including healthcare captives, continue to be formed.”
On the domestic front, the Cayman Islands has one of the highest insurance densities and penetration ratios in the world, with 25 active insurers offering various life, annuity, health and general insurance products to residents and businesses. The international and domestic insurance industries both play a vital role in the overall success of the financial services industry.
It is encouraging to see traditional captives, including healthcare captives, continue to be formed, but it is also worth noting the increasing diversity of insurance companies being formed in the jurisdiction, especially in the last five years.
In general, captive insurance structures have been put to more sophisticated use by their owners in the recent past, including the entry of blockchain technology, particularly in the form of smart contracts, within the captives and reinsurance space.
As the primary financial services regulator, the Cayman Islands Monetary Authority (CIMA) considers this be a positive development since captives have been well-established as a versatile and efficient risk-financing tool formed to provide greater risk management flexibility to their shareholders.
Another notable development is the use of captives to write significant third-party business (based on the Cayman Islands definition of third-party business) and lines of business, such as property catastrophe, environment pollution, cyber liability, loss/theft of digital assets, that were traditionally placed in the commercial insurance market.
Reinsurance companies have long been a feature of the Cayman Islands insurance industry and recent years have seen a noticeable growth in the sector. It is evident that the global markets have reacted positively to the local reinsurance regulatory framework and expertise, and consequently, several reinsurance entities have established a presence in the Cayman Islands.
New reinsurance licence applications over recent years have come not only from startup companies seeking to enter the reinsurance industry, but also from well-established companies redomiciling their operations from other jurisdictions to the Cayman Islands.
With enhancements made to the reinsurance regulatory framework, CIMA hired several top-level subject matter experts who bring a wealth of knowledge and practical experience to the industry. Such individuals also provide specialised regulatory oversight of complex and sophisticated reinsurance companies.
“The Cayman Islands has one of the highest insurance densities and penetration ratios in the world, with 25 active insurers.”
Cayman’s international involvement
Insurance is international and cross-border, and CIMA recognises that the globalisation of such products and markets evolve at a rapid pace. International regulatory standards and best practices have also evolved in light of these developments. As a leading international insurance jurisdiction, the Cayman Islands considers it has a responsibility to play a part in the global standard-setting mechanism and lead by example in achieving compliance with international requirements. This is demonstrated by the authority’s active participation in proceedings of the International Association of Insurance Supervisors.
CIMA also represents the jurisdiction on the Group of International Insurance Centre Supervisors as its vice-chair and holds the position of president of the Caribbean Association of Insurance Regulators. Through these engagements, the authority strives to hold the jurisdiction to the highest standards of quality in line with the best international practices so that our insurance licensees receive much deserved global recognition.
As of September 30, 2020, CIMA has entered into 58 international bilateral agreements and eight multilateral agreements with regulatory authorities, including the Memorandum of Understanding signed by the National Association of Insurance Commissioners in 2018.
The authority is also represented in various other international bodies, including the Group of International Financial Centre Supervisors; Caribbean Group of Banking Supervisors; Association of Supervisors of Banks of the Americas; International Organization of Securities Commissions; and the Financial Stability Board’s Regional Consultative Group for the Americas, to name a few.
“The Cayman Islands considers it has a responsibility to play a part in the global standard-setting mechanism and lead by example in achieving compliance.”
2021 and beyond
The economic impact of the COVID-19 pandemic will be felt for years to come, creating a dent in many businesses and operations. As such, it is unsurprising that the global insurance industry will be among those heavily affected. However, even with a widely uncertain outlook, the authority remains optimistic that the insurance sector will maintain a speedy growth recovery.
The pandemic has revealed several coverage gaps and has forced a shift in working operations, exposing businesses to new risks and threats. This will result in significant demand for new insurance products and services. Insurers will be required to change their business models by embracing advanced technologies. The acceleration of digital technology and innovation will also warrant flexible and efficient insurance vehicles as well as secure and sophisticated business and regulatory platforms, with strong cybersecurity frameworks.
CIMA’s regulatory philosophy to remain responsive, pragmatic and accessible to Cayman-based re/insurer licensees has undoubtedly contributed to Cayman’s overall success. Through a modern, flexible yet robust regulatory framework, which has proved to be effective under the most challenging conditions, the authority is confident that the Cayman Islands will continue to retain and attract quality insurance companies and maintain its dominance as a leading financial services centre in international insurance.