ICS: Future-proofing Cayman

Innovative Captive Strategies takes a close look at potential weak spots the Cayman Islands must overcome to future-proof itself as a premier choice for capital location.

 

There was a time when the Cayman Islands was an afterthought in the world of captives and reinsurance.

Propelled by its expertise, strong governance and less onerous capital requirements, Cayman is today breathing down the neck of Bermuda as a rival.

A report by KPMG last year, Cayman International Insurance: The Better Alternative, noted that there were 653 captives domiciled on the islands, narrowly behind the 711 located in Bermuda.

Numerous (re)insurance companies have arrived in the last five years armed with an abundance of capital ready for deployment in captive structures.

This has prompted the question of how the Cayman Islands can future-proof itself as a premier choice of capital location. Where are the weak spots?

Talent gap

A big discussion point centres on talent. Philip Alexander, partner at RSM Cayman, says: “The whole financial services in the Caymans is an expat industry and there’s not enough native Caymanians in it. That is a challenge.

For instance, we sponsor the Insurance Managers Association of Cayman (IMAC) with their education bundle. Every year they have seven or eight students they’re sponsoring through the University of Vienna.

“I don’t think any of them have done a relevant degree to get into what I’d call an accountancy firm or law firm or insurance manager. It’s a huge challenge and I think it is the same in the UK. Getting young people into professions is difficult,” he notes.

Adrian Lynch, executive vice-president for North America at Artex Risk Solutions, says: “It’s hard to retain and attract talent in somewhere like Cayman and Bermuda. It’s an expensive jurisdiction to live in. Not everybody is actually willing to move offshore, so it’s a smaller pool from which we are fishing from a talent perspective.

“And then what ends up happening in places like Cayman and Bermuda is that senior executives come here, they like the lifestyle and they get quite firmly entrenched. It can be quite difficult for young talent coming through to see where is next for them,” he adds.

Looking at solutions, Alexander says: “In the long run, Cayman needs to be less dependent on expats and do it more itself.”

Lynch, on the other hand, says talent needs to be managed “very, very carefully”.

“We’re very fortunate with Artex and Gallagher in that I have something like 11 or 14 offices to move talent around,” he says.

Aside from the talent issue, there is confidence the Cayman Islands stands in good stead for the future.

Lighter capital, strong regulation

Cayman has distinguished itself from Bermuda, which opted for Solvency II equivalence on capital requirements. This created additional costs for US-focused reinsurance programmes which do not need Solvency II equivalence.

That is why many have opted for Cayman’s more proportionate capital requirements. Cayman has also rolled out new legislations to meet EU mandates on areas such as transparency, which sometimes even exceeds global minimum standards.

This special blend of lighter touch capital requirements and strong regulation is not lost on industry leaders. Clayton Price, managing director and general manager at Beecher Carlson Cayman says: “Cayman has set into place various regulations that many board members of its licensed captive insurers have complimented the jurisdiction for and acknowledged their captive in some instances is ahead of the parent company in regard to corporate governance.

“Cayman is a desirable domicile not only for healthcare sector captives but also group, member insured shareholder-owned captives which have significantly increased in numbers of participants over the past decade, and which brings a captive insurance solution to small and medium-sized companies that otherwise would not be able to afford a captive proposition on their own.

“These opportunities, the infrastructure and the partnership with CIMA are just a few of the reasons coupled with best-in class service providers that supports Cayman’s future as being well proofed.”

John Dykstra, partner of Maples and Calder’s finance team in the Cayman Islands office, says: “Cayman is the undisputed leading jurisdiction for healthcare captives, representing a third of all captives. With a strong focus on ensuring robust full alignment with all developing international regulatory standards, the Cayman Islands is very well-positioned to continue enhancing and growing its insurance industry.”

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