Onwards and upwards

Despite hardening market conditions, significant economic decline and lingering concerns of the impacts of the COVID-19 pandemic, the Cayman Islands insurance industry has continued to demonstrate adaptability, maintaining an upward trend for the sixth consecutive year, in new formations. The effectiveness of the jurisdiction’s robust regulatory framework and the supporting service providers ensures that the Cayman Islands remains positioned for continued growth opportunities.

The Cayman Islands maintains 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 in 2021, the jurisdiction continues to see an increase in reinsurance company formations, signifying that the jurisdiction is fast becoming an international hub for reinsurance business. Additionally, 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, securities and private and commercial trusts.

The Cayman Islands international insurance sector

Keeping pace with the previous year, 26 new re/insurer entities were formed and licensed in the Cayman Islands as at September 30, 2022, while maintaining the standard of business associated with the jurisdiction. The total number of licensed insurance entities relating to the international insurance sector was 668 entities and 42 portfolio insurance companies for this same period. Cayman-based group captives continue to report exponential growth in their programmes and membership.

The jurisdiction’s international insurance industry continues to perform as expected, with approximately 90 percent of insurance risk emanating from North America. Despite continued diversification trends in the industry as commercial pricing rises, prominent risk types remain as medical malpractice liability, workers’ compensation, property and general liability. As of September 30, 2022, the international insurance industry has grown to report approximately $23 billion and $74 billion as total premium and total assets, respectively.

Domestically, 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 critical role in the overall success of the financial services industry and the wider economy of the jurisdiction.

While it is encouraging to see the continued formation of traditional captives, including healthcare captives which represent at least one third of the captives in the jurisdiction, the diversity of insurance companies continues to be motivated by commercial needs, resulting in far more sophistication within the captive and reinsurance space. This includes the entry of blockchain technology and insurtech. As the primary financial services regulator, the Cayman Islands Monetary Authority (CIMA) continues to adapt the regulatory framework for this continued trajectory of 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. The trend of writing 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 continues to prevail.

Reinsurance companies have long been a feature of the Cayman Islands insurance industry, but in recent years CIMA has seen noticeable growth in the reinsurance sector in new formations and volume of transactions reflecting the global markets positive embrace of the local reinsurance regulatory framework and expertise. Well-established reinsurance companies continue to re-domicile their operations from other jurisdictions to the Cayman Islands due to the enhancements made to the reinsurance regulatory framework and expertise available. This confidence continues to attract startup companies looking to enter the reinsurance industry and choosing the Cayman Islands as their domicile of choice.

Cayman’s international involvement

Insurance is international and cross-border, and CIMA recognises that the globalisation of such products and markets continue to evolve rapidly. International regulatory standards and best practices have also evolved in light of these developments. As such, a leading international insurance jurisdiction such as the Cayman Islands considers it their responsibility to consistently play a part in the global standard-setting mechanism and lead by example in achieving compliance with international requirements.

This is demonstrated by CIMA’s active participation in engagements of the International Association of Insurance Supervisors. CIMA 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, CIMA strives to hold the jurisdiction to the highest standards of quality in line with the best international practices. As of September 30, 2022, CIMA has entered into 59 international bilateral agreements and eight multilateral agreements with regulatory authorities, including the Memorandum of Understanding signed with the National Association of Insurance Commissioners in 2018.

CIMA is 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; the Financial Stability Board’s Regional Consultative Group for the Americas, and the Network for Greening the Financial System, to name a few.

Looking ahead

The adaptation propelled by the COVID-19 pandemic has led the insurance industry’s innovation and evolution in order to thrive. As such, the effects on the global insurance industry’s operational transformation will be present for many years to come. As new risks and threats continue to emerge and take focus, CIMA remains optimistic that the insurance sector will maintain its growth trajectory driven by protection gaps, intensifying impacts and technological enhancements. As a result, significant demand for new insurance products and changes to business and service models to meet pressures will continue. The acceleration of digital technology and innovation and the reshaping of physical and transition risks will also warrant flexible and efficient insurance vehicles as well as secure and sustainably sophisticated business and regulatory platforms, with strong cybersecurity, risk management and governance frameworks.

CIMA’s regulatory philosophy remains focused on a responsive, pragmatic, and accessible approach to its Cayman-based re/insurer licensees, significantly contributing to overall success of the financial services industry. The modern, flexible yet robust regulatory framework has proven to be effective under the most challenging conditions and the authority remains 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 for many years to come.