What is making the Cayman Islands so attractive to captive management industries over other domiciles and is its position substantiable?
When it comes to healthcare, the Cayman Islands is a world leader for captive management. The domicile represents around a third of all healthcare captives, according to the Cayman Islands Monetary Authority (CIMA).
The Cayman Islands’ healthcare strength stands out against rival domiciles. Indeed, Aon Cayman managing director Howard Byrne says his book of healthcare business is in good shape, with around 96 captives under management and just under half in healthcare. The largest contingent is not-for-profit.
Nonetheless, the healthcare captive industry has faced a change in the aftermath of the Affordable Care Act, commonly known as ‘Obamacare’, signed into law in 2010.
This prompted consolidation of healthcare providers, which in turn shrunk the numbers of healthcare captives.
However, this has not been a major problem. Byrne says: “[Obamacare] has led to a lot of consolidation, so we probably have larger entities of more scale, but because of the scale they have now, they’re more innovative in terms of the ideas they are thinking of, like making their captive insurance company for each of the renewals that come through.”
Healthcare is not the only sector attracted to the Cayman Islands. A wide array of industries across the US seek assistance for captive management. Property and casualty, motor, marine, aviation, health and life and annuity are all classes of insurance with significant premium dealt within the domicile.
Bermuda versus Cayman Islands
Bermuda has adopted Solvency II equivalence, but the Cayman Islands, with an estimated 90% of business coming from North America, can afford a less onerous capital requirement regime.
Philip Alexander, partner at RSM Cayman, says: “I think one of Cayman’s big opportunities is in Bermuda going to a Solvency II-compliant regime, whereas Cayman hasn’t. That has given us a great big capital advantage. You see firms coming here because the capital requirements are not particularly onerous.”
This capital advantage, allied to the island’s expertise and sound regulatory framework, has helped attract new business on the reinsurance side. “Our growth has really been in the reinsurance space in the last three to four years,” says Byrne. “We were licensed 10 new licences this year. We will have two healthcare and eight reinsurance in there,” he adds.
Adrian Lynch, Artex Risk Solutions executive vice-president for North America, eyes the life reinsurance market as a growth area. He says: “Bermuda is the number one, most pre-eminent market. But with Bermuda Solvency II principally being a property and casualty space, it means the longevity space, which is the life and annuity space and pension transfer space, are sometimes not applicable.
“With the consequence that the US cedents, the US life companies, are looking to derisk, and are looking to Cayman where they can bring their own internal capital model to CIMA.”
The regulators and governments have played a special role in carving out niches and specialties that make the island attractive. A good example of this is segregated portfolio company structures.
A segregated portfolio company separates out the assets and liabilities in a class of business. Each segregated portfolio company’s assets and liabilities are separate from each other, meaning they are ring-fenced from one another.
This means a company can derisk its business. There are no Cayman taxes on segregated portfolio company shareholders, nor exchange control restrictions. A captive insurance company can then sit behind the segregated portfolio company.
According to a KPMG analysis of the market last year, segregated portfolio company captives make up 22% of the market, and Cayman’s segregated portfolio company offering is widely regarded as the world leader.
Clayton Price, managing director and general manager at Beecher Carlson Cayman, Ltd says: “From a unique perspective, Cayman introduced its version of an incorporated cell captive where a segregated portfolio company can create a portfolio insurance company which can have its own separate board of directors, trade with other entities and the flexibility of a captive without having to incorporate a separate entity.”
Segregated portfolio companies, healthcare, life and reinsurance – it is clear Cayman has many strengths which mark it out as a leading domicile for insurance. Lynch is optimistic for the island’s future.
“All in all, I think there’s plenty of opportunity. It’s just a case of making sure that we, as an insurance management community, retain that sense of hustle and vigour to keep driving on up,” he says.