CIMA: the regulator’s perspective on the Cayman captive market

Cayman’s financial services regulator, the Cayman Islands Monetary Authority (CIMA), gives an update on what’s new this year in the Cayman captive market, and how the industry is faring

 

Despite the challenging market conditions, the prevailing high-interest rate environment and a notable economic downturn, the Cayman Islands’ insurance sector has consistently shown resilience, marking its seventh consecutive year of growth in new formations.

This sustained growth is a testament to the effectiveness and strength of the jurisdiction’s robust regulatory framework and the availability of skilled service providers, affirming the Cayman Islands’ readiness for ongoing opportunities for expansion.

The Cayman Islands continues to maintain 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 update in 2022, the jurisdiction continues to see an increase in reinsurance company formations, signifying that the jurisdiction is quickly solidifying its position as an international hub for reinsurance business.

Amid the prolonged market challenges and economic constraints, captives have led the new licence formations for 2023.

Furthermore, the Cayman Islands has continued to uphold its prominent status as a leading global financial services centre, delivering professional services to various aspects of the industry, including corporate services, banking, investments, fund management, securities, as well as private and commercial trusts.

Cayman international insurance sector

The pace of licensing activity for the year thus far has shown a positive indication that there will be significant growth in the jurisdiction, with 28 new (re)insurer entities being formed and licensed in the Cayman Islands as of 30 September 2023, while maintaining the usual highest standard of business.

The total number of licensed insurance entities relating to the international insurance sector was 699 entities and 47 portfolio insurance companies for this same period.

Cayman-based group captives continue to report exponential growth in both their programmes and membership.

The jurisdiction’s international insurance industry continues to perform as expected, with approximately 90% of insurance risk emanating from North America.

Despite continued diversification trends in the industry as commercial pricing continues to rise, the prominent risk types remain workers’ compensation, medical malpractice liability, and property and general liability.

As of 30 September 2023, the international insurance industry has grown to report approximately $57 billion and $137 billion as total premium and total assets, respectively.

Domestically, growth in new licence formations for 2023 have shown growth opportunities with two new active insurers being licensed this year, bringing the total number of active insurers offering various life, annuity, health and general insurance products to residents and businesses to 27.

Both the international and domestic insurance industries play integral roles in the overall success of the financial services industry and the broader economy within 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.

This has resulted in heightened sophistication within the captive and reinsurance sectors, including the ongoing adoption of blockchain technology and insurtech solutions.

As the primary financial services regulator, the Cayman Islands Monetary Authority (the Authority) continues to adapt the regulatory framework to accommodate this continued trajectory of development, as captives have firmly established themselves as versatile and efficient risk-financing tools designed to offer increased risk-management flexibility to their stakeholders.

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 and protection against loss or theft of digital assets, which were traditionally placed in the commercial insurance market, continues to be prevalent.

Reinsurance companies have long been a feature of the Cayman Islands insurance industry. However, in recent years, we have seen noticeable growth in the reinsurance sector in new formations and volume of transactions reflecting the global market’s positive embrace of the local reinsurance regulatory framework and expertise.

Well-established reinsurance companies continue to redomicile their operations from other jurisdictions to the Cayman Islands due to the enhancements made to the reinsurance regulatory framework and expertise available.

This assurance continues to draw the interest of newly established companies seeking to venture into the reinsurance sector and therefore select the Cayman Islands as their preferred domicile.

Cayman’s international involvement

Insurance operates on an international and cross-border scale, and the Authority recognises the ongoing rapid evolution of its global product and market globalisation.

In response to these developments, international regulatory standards and best practices have also progressed. As such, a leading international insurance hub like the Cayman Islands views it as its duty to consistently participate in the global standard-setting process and set a precedent for compliance with international requirements.

This commitment is exemplified by the Authority’s active participation in engagements of the International Association of Insurance Supervisors.

Additionally, the Authority also represents the jurisdiction on the Group of International Insurance Centre Supervisors as its vice-chair and holds the role of president of the Caribbean Association of Insurance Regulators (CAIR).

Through these engagements, the Authority endeavours to hold the jurisdiction to the highest standards of quality, aligning it with the best international practices.

As of 30 September 2023, the Authority has forged 60 international bilateral agreements and six multilateral agreements with regulatory authorities, including the memorandum of understanding signed with the National Association of Insurance Commissioners in 2018.

The Authority also maintains representation in various other international bodies, such as the Group of International Financial Centre Supervisors, the Caribbean Group of Banking Supervisors, the Association of Supervisors of Banks of the Americas, the 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 but a few.

A shared commitment to achieving a high level of technical compliance with global anti-money laundering standards has resulted in the Cayman Islands being removed from the Financial Action Task Force’s grey list.

Looking ahead

As new risks and threats continue to emerge and impact the insurance sector on a macroeconomic scale, the Authority remains optimistic that the insurance sector will sustain its growth trajectory.

This growth is driven by addressing protection gaps and intensified economic impacts, as well as embracing technological and innovative advancements.

Consequently, there will be a substantial demand for new insurance products, necessitating adjustments to business, investment strategies and service models to meet the evolving challenges.

The acceleration of digital technology and innovation, along with the reshaping of physical and transition risks, will further emphasise the need for flexible and efficient insurance solutions.

These should be coupled with secure and sustainably sophisticated business and regulatory platforms, bolstered by robust cybersecurity measures and strong risk management and governance frameworks.

The Authority’s regulatory philosophy remains focused on a responsive, pragmatic and accessible approach to its Cayman-based (re)insurer licensees, which significantly contributes to the overall success of the financial services industry.

The modern, flexible yet robust regulatory framework, has proven to be effective even when under the most challenging conditions, and the Authority remains confident that the Cayman Islands will continue to retain and attract quality insurance companies, thus solidifying its position as a leading financial services centre in international insurance.

12 August 2024
5-6 November 2025

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