Regulating Cayman’s insurance industry

By Cayman Islands Monetary Authority

Over the years, the financial industry of the Cayman Islands has remained highly competitive in several areas. One in particular is the insurance industry.

Since the introduction of the Insurance Law in 1979, the Cayman Islands has become a major center for international insurance business. Today it is home to the second largest domicile for international insurers and holds the number one position worldwide for healthcare captives, with trends of continued growth.

State of the Cayman Islands insurance sector

The current state of the insurance sector in the Cayman Islands consists of both domestic and international markets. As of September 2016, there are 864 insurance-related licensees, of which 121 and 743 are related to domestic and international insurance markets respectively.

Pure captives and group captives represented the two main categories, with 361 and 125 companies, respectively. With approximately 34 percent of companies (re)insuring hospital and medical professional liability, this continues to be the largest primary line of business.

The domestic market is comprised of nine locally incorporated companies and 20 branch/agency operations of foreign companies. Of the 29 domestic insurers regulated by the Authority, 25 were engaged in active business.

Despite the competitive market, especially with emerging onshore captive domiciles such as the United States, 33 new insurer licensees have been added to the international insurance market in the first three quarters of the year. This reflects a 50 percent growth, compared to the number of new licenses issued in 2015. Total premium levels and assets of 711 insurers, representing the international segment, were at US$13.9 billion and US$58.9 billion, respectively.

Risk location of captives continued to be dominated by North America, which accounts for 90 percent of the Cayman market, followed by the Caribbean and Latin America at 3 percent, Europe at 2 percent, and the remaining global market at 5 percent.

One of the exciting developments in the Cayman Islands market is the recent trend in new captive or (re)insurance company formations, particularly backed by subsidiaries within international insurance groups, intermediaries and hedge funds.

As the regulator of the world’s second largest captive jurisdiction, the Cayman Islands Monetary Authority strives to ensure that the insurance sector is regulated in accordance with international best practices, while having consideration for the competitiveness and required innovation to remain as one of the top leading domiciles.

Domestic legislation

One of the key functions of the Authority is to enhance key regulatory laws and regulations. Some of these recent developments include the enactment of the Portfolio Insurance Companies (PIC) legislation in early 2015, which has resulted in positive changes to the industry.

PICs were introduced as an innovation to the existing segregated portfolio company (SPC) structure. One of the key benefits of a PIC is the ability to transact with other PICs and standalone (re)insurance companies.

Another advantage is that a PIC can have its own legal identity with a board of directors, without the risk of contaminating the core business or existing business.

Many captives also consider it to be more cost effective to establish a SPC first and create PICs within the SPC as business grows; thereby saving time and money.

There are currently six PICs registered with the Authority. However, given the number of enquiries from existing and prospective licensees, a steady increase in PIC formations is expected over the next year. This will be more evident as persons become more aware of the innovative ways in which PICs can be used.

As a reflection of the ongoing work and commitment to enhancing the reputation of the Cayman Islands, there has also been the introduction of the Rules and Statement of Guidance on Outsourcing arrangements, risk management, and market conduct. This ensures that the Authority continues to comply with international best standards, and confirms that the Cayman Islands is a jurisdiction which upholds robust and world-class regulatory standards.

Supervision of licensees

Fortunately, the Cayman Islands has been successful in striking a proper balance between regulation and developing a risk-based approach to ensure that our licensees are appropriately supervised. This is mainly due to the built-in flexibility of its legislation and practical application of business awareness. Over the years, the Cayman Islands has built an exceptional infrastructure of professionals who have facilitated, managed and supervised thousands of captive programs.

As a part of this development, the Authority recently appointed Ruwan Jayasekera as Head of the Insurance Supervision Division. He was confirmed to the post, effective July 14.

With more than 17 years of experience in insurance, in both regulatory and industry roles, Jayasekera brings a wealth of knowledge to the field.

In addition, the Authority’s traditional regulatory approach is not to micro-manage its licensees’ day-to-day operations, but rather to create an appropriate regulatory framework that addresses the associated risks, while remaining in compliance with the applicable laws and regulations, and being open to new ideas and innovation.

Collaboration

The Cayman Islands Monetary Authority also recognizes that the globalization of insurance markets evolves at a rapid pace, and that captive structures are being put to more sophisticated use by their owners. Therefore, the Authority continues its commitment to actively participate in international regulatory organizations.

This is demonstrated by the Authority’s participation in proceedings of the International Association of Insurance Supervisors (IAIS) as a member of the Education, Market Conduct, Financial Stability Committees, and the Reinsurance Task Force. The Authority also serves as a Regional Training Coordinator for the IAIS.

Other partnerships include membership in the Group of International Insurance Centre Supervisors (GIICS), formerly known as the Offshore Group of Insurance Supervisors, or OGIS, Group of International Finance Centre Supervisors (GIFCS), International Organization of Securities Commissions (IOSCO), the Caribbean Association of Insurance Regulators (CAIR) and the Financial Stability Board’s Regional Consultative Group for the Americas.

Ease of doing business

As the regulators of the financial services industry, the Authority continues to enhance the ease of doing business for industry stakeholders, particularly through the use of technology.

One of the advantages which we have seen in this effort has been in relation to a new online portal – Regulatory Enhanced Electronic Forms Submission (REEFS) – which enables regulated entities to submit applications and make change requests electronically. This portal significantly improves on the previous E-Reporting system and further allows the Authority to become more efficient.

Although REEFS is still in its initial phases, the Authority anticipates that the technological enhancements of this new system will facilitate greater efficiency and effectiveness of risk and data reporting and analysis.

Forecast

With the changing landscape in the healthcare industry, especially in the United States, the Authority is optimistic about the new opportunities that this may present for captive insurers as it relates to volume and nontraditional risks.

In 2017, the Authority will continue to identify areas where greater efficiency, flexibility and innovation are necessary.

As part of our continued efforts to promote market confidence and consumer protection, the Monetary Authority, in conjunction with the Cayman Islands Government, and other industry stakeholders, is also preparing for the upcoming Caribbean Financial Action Task Force review. This exercise is slated for the fourth quarter of 2017, and will assess the anti-money laundering regime of the Cayman Islands.

Nevertheless, with a robust, yet flexible and competitive regulatory regime, infrastructure and high levels of expertise and experience, the Cayman Islands will continue to maintain its position as a leading world-class jurisdiction for offshore insurance, and remain attractive to quality business, for both existing and potential licensees.

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