Confidence remains high

“We highly value the input of this sector and place great importance on the role of insurance managers.”

Over the years, the Cayman Islands has built a reputation as a leading jurisdiction for international business. The ability of government to keep pace with international regulatory and commercial standards and create a strong business environment, with our financial services industry having the knowledge and expertise to thrive, has been a big part of our success.

While the times have changed, Cayman can continue to provide certainty to investors and service providers in the captive insurance sector, as a globally respected financial services centre of excellence, now and well into the future.

Confidence in Cayman comes from the long-established fact that we are the world’s leading jurisdiction for healthcare captives and group captives. This stems in part from a shared desire by our stakeholders to see Cayman captive vehicles flourish. Among our stakeholders is Cayman International Insurance (CII), with its efforts to promote the solidity of our captive products and professionals contributing to the positive impact captive insurance has on our jurisdiction’s reputation.

Much of the work done by captives involves mitigating risks and dealing with expected and unexpected eventualities. As the statistics show, captives in the Cayman Islands have managed these considerations well.

According to statistics provided by the Cayman Islands Monetary Authority, as of September 30, 2021, pure captives continue to be the preferred arrangement, accounting for 42 percent of all captive structures. The current total of 278 companies is on par with the September 2020 figure of 282 pure captives. Pure captives help to address our primary lines of business: medical malpractice liability and workers’ compensation.

In addition to captives, the Cayman Islands continues to retain and attract a variety of insurance licence entities. As of September 30, 2021, there are 662 class B, C and D insurance companies in the jurisdiction—which is slightly more than the September 2020 figure of 652 companies. These companies now oversee a total asset value of nearly $76 billion.

Among these, segregated portfolio companies (SPCs) have established their position as a popular company type for captives, totalling 144 entities—roughly 22 percent of the total 2021 insurance companies formed. Based on their performance to date, SPCs have appeal as flexible entity types for handling risks associated with complex corporate structures, such as being used to house numerous portfolio insurance companies.

Rounding out the statistical report card is the sustained growth in the class B sector space, particularly with the issuance of class B (iii) licences. There are now 162 licences, which operate as third-party re/insurance companies, representing an increase from the 2020 figure of 153 licences and the 2019 amount of 145 licences.

It should also be noted that government hopes to encourage further activity in the re/insurance sector through a proposed amendment to the Insurance Act to introduce a new product for life insurance and re/insurance carriers, the capital redemption contract/funding agreement. This product would assist with succession planning, as the contract would be passed to subsequent beneficiaries, without interruption, following the death of the original holder.

Evolving standards

The stability in our captives sector indicates that market confidence in the Cayman Islands remains high, with a continued appreciation for our consistent adherence to international standards.

These evolving standards have been a focus for the jurisdiction in recent years, with Cayman dealing with external assessments by international regulatory bodies and jurisdictional initiatives. These include the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering, counter-financing of terrorism and counter proliferation financing (AML/CFT/CPF); and the Organisation for Economic Co-operation and Development (OECD), which oversees the international standards for tax matters. In addition, the jurisdiction’s (re)insurance sector is regularly peer reviewed by the International Association of Insurance Supervisors (IAIS), the global standard-setter for insurance standards.

It’s important to note here that as a leading international financial centre, the Cayman Islands views its cooperation with global assessments as an important responsibility, which also provides reputational value. Engaging with global bodies, and our local stakeholders, is an important part of the work being done to protect and enhance the jurisdiction’s international standing.

Regarding our international engagement, Cayman has maintained dialogue with EU decision-makers. In addition, we did not appear on the EU’s October 2021 list of non- cooperative jurisdictions for tax purposes, due to expanding our economic substance regime to include requirements for partnerships.

Cayman remains a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), and we are among 136 countries to agree to the recent Pillar One and Pillar Two proposals. Presently, based on the statement agreed by the Inclusive Framework, we expect little impact on our financial services industry due to: our minimal multinational enterprise exposure; tax neutral investment funds being out of scope; our lack of double-tax treaty arrangements (which have been part of the friction these proposals seek to overcome); and the proposals do not require alteration of our indirect consumption tax regime.

Taken together, these factors have us well placed in relation to these international tax reforms which are consistent with the Cayman Islands’ long-standing principle that taxes should be paid where they are owed.

We shall continue to have an open and positive relationship with the OECD, and we participate in the Inclusive Framework meetings and working groups as they develop the detailed rules and procedures to further the work on the BEPS project.

Solid work

As a leading international insurance jurisdiction, it is considered our responsibility to be part of the global standard-setting mechanism, lead by example, and achieve compliance with international standards. This is demonstrated by the Cayman Islands’ active participation in IAIS proceedings. Cayman is also represented on the Group of International Insurance Centre Supervisors as its vice chair. In the Caribbean region, the jurisdiction holds the position of president of the Caribbean Association of Insurance Regulators.

Lastly, concerning the FATF, Cayman continues to make progress with our AML/CFT/CPF measures to display an effective regime that caters to sound business and fights criminality, both locally and globally. I am therefore pleased to report that this year the Cayman Islands has been assessed as compliant or largely compliant with all 40 of the FATF’s Recommendations. In addition, Cayman is using a three- point action plan to address the remaining practical considerations for ensuring our regime is effective and, since February of this year, we have made consistent progress on that front.

Notwithstanding our tremendous FATF result and significant progress, there is a possibility that the EU could place the Cayman Islands on its AML list. This placement would be based on the EU’s methodology, which considers inclusion on the FATF grey list. However, should we be listed by the EU, we are prepared and poised to address the listing positively and swiftly, as we did in 2020 when we were included and subsequently removed, just months later, from the EU list of non-cooperative jurisdictions for tax purposes last year. Our adherence to international standards and ongoing dialogue and engagement with the EU is key to navigating this and other listings.

As we move forward with these and other matters concerning the financial services industry, government will continue to engage with CII. We highly value the input of this sector and place great importance on the role of insurance managers.

When I reflect on our accomplishments and the solid, innovative work we are doing, I see a future where investors and service providers like you will continue to know and trust in the Cayman Islands. In particular, captive insurance remains important to the Cayman Islands. We look forward to continued collaborative and enterprising relations with CII and the wider insurance sector, which provides sound business to our jurisdiction now and keenly for the foreseeable future.