The Cayman Islands is capitalizing on new opportunities in the reinsurance market after 75 percent of the 33 new insurance and reinsurance companies established in Cayman last year were linked to the reinsurance space. The total number of new entities exceeded the combined new registrations for Bermuda and Vermont, two significant competitor jurisdictions in the space.
Adrian Lynch, managing director of AON in Cayman, said even though Cayman was far from being the first to the table in the reinsurance market, there is a developing theme in the space that sees Cayman develop a distinct competitive advantage.
The main differentiator between Cayman and Bermuda, for instance, is that Bermuda chose to establish equivalency with Solvency II, a European regulatory framework that determines capital requirements and governance for insurance and reinsurance companies primarily in Europe. Cayman, on the other hand, did not pursue equivalency, mainly because 90 percent of the insurance business in Cayman comes from the United States.
“I would suggest that by default, that has created some opportunities for us,” Lynch said during a panel discussion at the Cayman Alternative Investment Summit in February.
Simon Burton, CEO of Greenlight Re, agrees that Solvency II clearly is the differentiating feature of Cayman. “I call it a feature because you might think that more equivalency is good. Of course, that is not necessarily true,” he said.
Most companies in Bermuda will have offices and balance sheets in countries that already have Solvency II equivalency, be it in London or elsewhere, he said, arguing that “you don’t need every part of the organization to achieve equivalency.”
Greenlight Re has a Cayman balance sheet that embodies most of its capital base, but the reinsurer also has a subsidiary that is subject to Solvency II-equivalent regulation.
“And we get the best of both worlds in that way,” he said. “There are particular transactions that are considerably more efficient through the Cayman operation because of our lack of Solvency II equivalency.”
The regulatory environment is another distinctive factor in Cayman because it is comparatively commercial, market-facing and innovative, according to panelists at the investment conference.
Derek Stenson, head of the insurance and reinsurance practice of Conyers Dill & Pearman, called the legal and regulatory framework “high quality” and “sensible,” as well as “robust” and “flexible within reason.”
“One of the real trump cards we have is the Cayman Islands Monetary Authority,” he said, describing the regulator as “extremely approachable, commercial and responsive” and the client feedback on working with CIMA as very positive.
Burton, who moved to Cayman from Bermuda a year and a half ago, went through a CIMA inspection only three months after his arrival, but he said it was a thoroughly positive experience.
“It is clear that the jurisdiction is deeply interested in CIMA being a strong and responsive regulator. They were, in fact, tremendously helpful in all directions. That’s all I can ask,” said Burton. “We welcome regulation. As a public reinsurance company, we rely on regulation to provide us the reputation that we need to conduct our business. And CIMA does provide that.”
Alex Lehman, founder of Ironstone, a single-family office, which has undertaken several transactions in the longevity space of the reinsurance market, shares that experience from an investment angle.
“Most of what we do is different, most of our conversations with CIMA are about doing things that haven’t been done in the jurisdiction before,” he said, adding that the regulator “is absolutely rigorous in trying to understand what it is what we are trying to do” but also “very responsive.”
Cayman’s history and experience in the funds industry is equally important, panelists said. The strength of the funds industry means that Cayman is uniquely placed to participate in many of the latest developments on the reinsurance side.
“The conversion of the reinsurance industry and the funds industry should be starting, taking place and finishing in the Cayman Islands,” said Lynch. “And I would suggest that we perhaps haven’t done as good a job as we should have in Cayman but that’s changing now in terms of our focus as an industry and as a market place in how we are addressing that.”
Having an established funds industry also means that the professional talent on island is first rate and world class and there is a recognition of and familiarity with Cayman among investors around the world, Lehman added.
New business opportunities for reinsurers emanate from expanding types of business, such as the longevity space, and from addressing existing inefficiencies of the industry itself.
AON’s Lynch noted that reinsurance is witnessing a departure from the traditional property and casualty business to the de-risking of the large life insurance and pension carriers in the U.S. in the pension risk transfer market, the life annuity market and the long-term care insurance market.
Greenlight Re’s Burton, in turn, pointed to the inefficiencies that exist in the industry and that reinsurers will have to address in the future. He said that of every dollar of premium that moves through the value chain 40 cents are absorbed by expenses and profits.
Greenlight Re has formed an innovations unit with the objective of investing in tech-enabled start-ups that are tackling areas of disruption and inefficiency within the industry.
Investments include, for instance, a blockchain initiative in Hong Kong, a point of sale business in South Africa, and a team focusing on an antiquated class of medical stop loss in North America.
With Greenlight Re as the strategic partner alongside them providing the industry knowledge of building an insurance product, Burton said, the reinsurer’s focus is to help these businesses succeed, as opposed to using it as a hedging mechanism.
“I think some of our peers are more worried about the future than we are,” he said. “We are willfully embracing it.”