Artex Risk Solutions

Growth, uninterrupted

Cayman continues to experience growth in terms of alternative risk insurance solutions. In particular, the island has seen growth in ILS, group captives and class B(iii) licensees, says Kevin Poole at Artex.

“We are working with our colleagues at Horseshoe on a number of interesting transactions.”

Kevin Poole, Artex Risk Solutions

Over the last year Cayman has experienced an increase in inquiries from those writing non-related business, via both cell company structures and standalone entities. In addition there have been more questions around insurance-linked securities (ILS) and the capital markets as a potential solution to capacity shortages. Meanwhile, existing group captives continue to add new members and new ones are formed.

This year we’ve seen a variety of questions about ILS and whether capital markets can be a potential solution to capacity shortages. In 2016, Artex entered the ILS sector through the acquisitions of Hexagon Insurance PCC and Kane’s insurance management operations. With the acquisition of ILS specialist Horseshoe Insurance Services Holdings in November 2019, we significantly strengthened the Artex ILS operations.

Over the past 12 months we have received numerous inquiries about ILS in general and how it can possibly help clients. Part of this increased interest has arisen as more domiciles introduced ILS regimes, beginning with the UK in 2018 and then Singapore in 2019. Additionally, we’ve found that established domiciles such as Guernsey, Bermuda, and Cayman continue to attract ILS vehicles and sponsors.

The facilitation of collateralised reinsurance transactions is another popular ILS solution which has experienced significant growth in the last decade. Artex has been a major market participant, facilitating billions of US dollar transactions through our cell companies. Such transactions are open to smaller players but still lend themselves to participation in higher layers, and can be used to complement an existing reinsurance placement.

We are working with our colleagues at Horseshoe on a number of interesting transactions which highlight how this increased interest is bringing about a lot of dialogue about the future of ILS and how it could be applied to a number of industries.

“In some ways the middle market segment appears to have been hit the hardest by recent rate increases.”

Great solutions

Group captives have always been a wonderful solution for mid-market companies looking to share the risk and reward of insurance with like-minded businesses. The hardening market has greatly increased the number of inquiries, and we’re seeing new homogenous and heterogeneous groups being formed, while existing groups are also increasing their membership.

Trucking and construction are hot, but we’re also seeing an increase in coverages as group captives begin to write medical stop loss.

In some ways the middle market segment appears to have been hit the hardest by recent rate increases. The auto, general liability and umbrella markets have increased rates, but those already in groups with successful track records have been able to limit premium increases. Companies with good loss records have been able to access group captive solutions.

Cayman is the domicile of choice for a large number of group captives and is home to the world’s largest. Some of this success is attributable to Cayman’s regulatory benefits: groups are regulated in the same manner as single parent captives, while incoming letters of credit from members can be counted towards a captive’s surplus.

Artex continues to generate significant new business through our sponsored groups that are open to all brokers, and other, more closely controlled programmes are also flourishing.

Cayman has seen an increase in B(iii) licensees, from carriers writing non-related business. These come from a wide variety of industries who can choose from a few different formation options, including cell company structures such as the traditional segregated portfolio companies (SPCs) and portfolio insurance companies (PICs), which are basically incorporated cells.

The B(iii) licence is being used by participants from all industry types. These participants may be writing true reinsurance business by reinsuring books of business that more recently includes life, pension and annuity business, as well as the more usual general business on an excess of loss or proportional basis.

“The sophistication and understanding of structuring deals that can be found in Cayman, led by insurance managers and local service providers, has also helped enormously.”

Solvency and more

Cayman has become increasingly attractive because of its efficient capital and solvency regime, which offers a certain amount of capital arbitrage compared with other domiciles. The minimum capital for a B(iii) insurer is $200,000, which is considerably less than in some other domiciles. Prescribed capital is based on a sliding scale depending on net earned premium.

The sophistication and understanding of structuring deals that can be found in Cayman, led by insurance managers and local service providers, has also helped enormously.

The Cayman Islands Monetary Authority has robust risk-based regulations in place that cater to such programmes. This has resulted in some business coming to Cayman that would have gone to other domiciles in the past.

When it comes to dealing with sophisticated insurance buyers looking for reinsurance programmes, Artex has an excellent team on hand. In November 2019 we acquired EWI Re, which has a long history in the design, development and global placement of reinsurance programmes for captives and mutual insurance companies. They’ve added a great deal to our bench strength when it comes to complex risks.

There is one more new business trend that we’re seeing: as the year progressed we saw an uptick in business opportunities outside the US, from places such as Latin America, the Middle East and North Africa, Europe and Australia. Many of these opportunities are linked with fintech solutions. This is resulting in innovative types of insurance products being offered on a cross-border basis to customers as niche products become prevalent.

The outlook for the captive insurance market in Cayman remains bright. Insurance managers, service providers and the regulator must continue to work together to understand and develop innovative insurance solutions for the next generation of companies and industries.

I’m excited to put 2020 behind us and see what 2021 will bring.

Kevin Poole is deputy managing director for the Cayman Islands at Artex Risk Solutions. He can be contacted at:

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