Cooperation and engagement: the key to Cayman’s success

The success story of the Cayman Islands over the years is one of a globally respected financial services and innovation centre of excellence that inspires unwavering confidence locally and abroad.

The Cayman Islands government has bolstered and maintained a regulatory framework that balances our ability to meet and exceed international standards with our desire to address the latest commercial needs. In addition, Cayman attracts the level of knowledge and expertise that can thrive across the entire financial services industry, including the captive insurance sector.

The steadfast nature of our financial services allows Cayman to continue providing certainty for investors and service providers in the captive insurance sector.

All our stakeholders have a shared desire for high-performing Cayman captive vehicles. Among our key partners is the Insurance Managers Association of the Cayman Islands (IMAC). Over the years, IMAC has steadily promoted the solidity of our captive products and the capabilities of our industry professionals. As a result, captive insurance has made a positive contribution to our jurisdiction’s reputation and we are proud to be the world’s leading jurisdiction for healthcare captives and group captives.

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.

“All our stakeholders have a shared desire for high-performing Cayman captive vehicles.” The Hon. André Ebanks

According to statistics provided by the Cayman Islands Monetary Authority (CIMA), as of September 30, 2022, there are 668 class B, C and D insurance companies in the jurisdiction—slightly above the September 2021 figure of 662 companies. These companies now oversee a total asset value of nearly $75 billion.

Segregated portfolio companies (SPCs) have established their position as a popular company type for captives, totalling 149 entities—roughly 22 percent of the total 2022 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.

Pure captives, meanwhile, continue to be the preferred arrangement, accounting for 42 percent of all captive structures. The current total of 278 companies replicates the 278 pure captives we saw in September 2021. Pure captives help to address our primary lines of business: medical malpractice liability and workers’ compensation.

Finally, the sustained growth in the class B sector space, particularly with the issuance of class B(iii) licences. There are now 172 licences which operate as third-party reinsurance companies, representing an increase from the 2021 figure of 162 licences and the 2020 number of 153 licences.

Looking ahead

The government hopes to observe further activity in the reinsurance sector through the Insurance (Amendment) Act, 2022, which came into force in June 2022. The amendment introduces a new product for life insurance and re/insurance carriers, the capital redemption contract/funding agreement. This product assists with succession planning, as the contract would be passed to subsequent beneficiaries, without interruption, following the death of the original holder.

The introduction of a new reinsurance investment vehicle is expected to support the overall performance of our captives sector. The amount of captive insurance activity in our jurisdiction is indicative of a high level of market confidence in the Cayman Islands, and a continued appreciation for our consistent adherence to international standards.

As a jurisdiction, these evolving standards have been a focus in recent years, with Cayman addressing external assessments by international regulatory bodies and undertaking jurisdictional initiatives. Two of the major entities involved are the Organisation for Economic Co-operation and Development (OECD), which oversees the international standards for tax matters, and 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).

“In March of this year Cayman automatically was added to the EU’s AML list.”

In addition, the jurisdiction’s reinsurance sector is regularly peer-reviewed by the International Association of Insurance Supervisors (IAIS), the global standard-setter for insurance standards.

Our cooperation with these global bodies and the various assessments is an important responsibility that enhances the Cayman Islands’ reputation. As a globally respected financial services centre, we have to continue engaging with our overseas and local stakeholders to best protect and enhance the jurisdiction’s international standing.

Our engagement has been productive with the EU and we have maintained good dialogue with its decision-makers. We believe building their understanding of the good work being done by the Cayman Islands has supported our tax initiatives for areas such as economic substance and therefore Cayman was not added to the EU’s October 2022 list of non-cooperative jurisdictions for tax purposes.

We believe our engagement with the OECD has made a tangible impact on the framework for international tax regulation. We have a healthy working relationship with the OECD and we support our international partners in combating tax evasion and aggressive tax avoidance. We are engaged with the OECD working groups, and continue to communicate our perspective in the development of the legal and practical mechanisms which will implement any new global tax rules.

Moreover, we’re in a good position to handle the current proposals by the OECD Base Erosion and Profit Shifting Inclusive Framework on Pillars One and Two, which concern the global tax position of certain large multinational enterprises. Tax-neutral investment funds are out of scope of these proposals and there is no requirement to alter Cayman’s indirect, consumption-based tax regime with a direct tax regime.

In summary, our position with regard to international tax reforms aligns with the Cayman Islands’ long-standing principle that taxes should be paid where they are owed.

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. The Cayman Islands has been assessed as compliant or largely compliant with all 40 of the FATF’s Recommendations, which is in keeping with our competitors in G20 countries and fellow international financial centres.

In addition, the Cayman Islands has made solid progress toward completing our three-point action plan to address the outstanding items of the FATF’s 63 recommended actions for improving our AML/CFT regime, which was issued in February 2021. Two areas recommended for improvement by the Caribbean Financial Action Task Force (the FATF’s regional body) have been addressed, in relation to CIMA’s sanctions regime and beneficial ownership filings and sanctions. The latter was recently confirmed by the FATF at its October 2022 plenary.

The third FATF action point relates to money laundering prosecution. The Cayman Islands continues to make meaningful steps to address this remaining action point and aims to report further progress by the time of the next FATF plenary in February 2023.

On the EU front, in March of this year Cayman automatically was added to the EU’s AML list, as a result of being previously included on the FATF grey list for AML.

However, the progress we’ve made to address the FATF’s concerns puts us in a good position with the EU. In May of this year, during an engagement trip to Brussels to meet with EU officials, the EU confirmed it will not require Cayman to complete any additional measures in order for Cayman to be removed from its list. As a result, Cayman’s removal from the EU list should occur shortly after the FATF action plan has been satisfied.

Finally, with regard to insurance, the Cayman Islands is a leading jurisdiction with a 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 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.

As we navigate matters affecting our financial services, including the insurance sector, government will continue to engage with IMAC. We highly value the input of this sector and place great importance on the role of insurance managers.

Ultimately, collaboration, engagement, and a robust business environment have underpinned our accomplishments and our ability to instil investor confidence in the Cayman Islands. Captive insurance will remain an important segment to the Cayman Islands for the foreseeable future. We look forward to the further strengthening of the relationship between government, IMAC and the wider insurance sector as we encourage further sound business to our jurisdiction.