and it is comforting to note that international regulators are now recognising proportionality as a fundamental concept in regulation.


What is CIMA’s overall strategy moving forward and how are external pressures impacting the authority’s approach?


Our regulatory model of the past has worked very well and we


don’t anticipate any major strategic shifts going forward. The Cayman Islands has successfully risen to external pressures from the Organisation for Economic Co-operation and Development (taxation), FATF (anti-money laundering) and the International Monetary Fund (regulatory), and continues to maintain international recognition arising from our continuous compliance with international standards. However, equally as important is that we continue to work closely with our licensees to make sure that their business plans remain viable and successful. These two approaches have worked very successfully in laying the foundation for a dynamic insurance market with negligible solvency issues.


How are preparations for Solvency II faring and what have been the greatest challenges faced by CIMA?


At present, our preparations for Solvency II are proceeding to


plan. Whilst we do have a separate reinsurance and captive market, we do not have an exposure in the European Union that would warrant immediate action. However, we have contributed to the Committee of European Insurance and Occupational Pensions (CEIOPS) consultation processes, particularly in highlighting some suggestions for the regulation of captives under Solvency II. There are a number of areas that still need resolution from the recent QIS5 assessments, including the validity of the benchmarks used, the calibrations and the definition of proportionality as applied to all insurers. However, the challenges of Solvency II to captive regulation are not unique to the Cayman Islands, but a challenge to all international captive jurisdictions.


What are your expectations regarding the impact of Solvency II and equivalence upon captives in the Cayman’s? How is CIMA looking to help prepare captives for regulatory change?


CIMA has continued to assert that the concept of Solvency II must


be applauded as one approach to commercial insurance regulation, although the key in implementing any new framework is making sure that everyone is in agreement with the methodologies and underlying definitions. As stated, a fundamental principle of the Lisbon Treaty is the definition of proportionality and, at present, we are interested in hearing CEIOPS’ advice on how this definition applies on a wider scope to not just commercial insurers and reinsurers, but also any other form of insurance entity, including captives.


In terms of helping prepare captives for regulatory change, it is


a common practice in Cayman for all stakeholders in a process to work together and, at CIMA, we keep our local market fully engaged in any international developments.


What are the regulatory implications of US health insurance reform and what impact will they have on the Cayman captive industry?


We recognise that it is quite an expansive reform to health


insurance that, amongst other things, prohibits lifetime limits on health insurance policies, exclusion based on pre-existing conditions and further mandates coverage for preventative medicine. How will this affect captives? Well, some possibilities include:


• It will likely affect licensees through increased responsibility and paperwork


16 CAYMAN CAPTIVE


• Captives reinsuring employee benefits under stop-loss coverage will need to evaluate pricing because of the increase in costs, and


• Captives reinsuring workers’ compensation may see a reduction in claim costs due to the shifting of medical costs from the workers’ compensation programme to the employer/employee health plan.


Ultimately, these can have an effect on any international jurisdiction


offering captive or reinsurance options. However, given the recent legal challenges in Florida with respect to the constitutionality of healthcare reform, and recent moves in Congress, it is difficult to see what final shape US healthcare reform will take and hence the impact on the captive industry.


Are there any further regulatory changes on the horizon in Cayman, and what implications might these have for captives on the Islands?


The Insurance Law 2010 was passed by the legislative assembly


in September 2010, following review by CIMA, the Ministry of Finance, the Insurance Managers Association of Cayman (IMAC), the Cayman Islands Insurance Association (CIIA) and other interested parties. The Insurance Law seeks to address a number of different objectives. The key principle is that we must recognise that we have two distinct markets—domestic and international—and that the laws and regulations should reflect the appropriate risks inherent in both. We believe the new Insurance Law is modern, addresses risk proportionally (i.e. appropriate to the size, risk and complexity of the licensee) and attains the flexibility to maintain not only our international commitments, but also to enhance our insurance business. In addition to creating an explicit class of licence for special purpose vehicles and for reinsurers, the new law creates distinct sub-categories for international insurers, from pure captives to open market insurers, and provides appropriate regulation for each. The categories are based on the proportion of risk they are covering from their related business as compared to the proportion from their unrelated business.


The final stage of this process is the development of the insurance


regulations that will reflect these objectives. It would be reasonable to say that we are comfortable with the existing compliance environment of our captive licensees and do not anticipate any material changes to our present captive regulatory structure.


Finally, how is CIMA looking to strengthen and secure Cayman’s position as a leading captive domicile moving forward?


There have been a number of economic and international


developments in recent months, including US healthcare and financial reform (the Dodd-Frank Act), soft insurance and reinsurance markets, Solvency II and developing International Financial Reporting Standards (IFRS). CIMA recognises that these events may have impacts both positive and negative on the captive sector, and works closely with the private sector to listen to their concerns and also works closely in its role as an advisor to government. I would say that the Cayman Islands government has been historically proactive in maintaining our legislation on the forefront of development and that CIMA has been very good at meeting changing market needs.


Cindy Scotland is managing director of the Cayman Islands Monetary Authority. She can be contacted at: cima@cimoney.com.ky


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