Peter Mackay…the first time I ever saw him on the Island was
not in his office, but in his home away from home…Fidel Murphy’s. Seriously.
Stephen Gray and Jim Owen, the two that first made me realise
how small an island Grand Cayman really is! I also remember standing near the post office. It was sometime
in July, about 95 degrees and very humid out, and I was wearing a suit. It might as well have been a suit of armour for as hot as it was. I remember the tourists in their shorts and flip-flops. I remember how embarrassed I was during my subsequent meeting. My neatly pressed suit looked like I had just taken it out of the washing machine. But all the while, I remember how nice everyone was. Me in my navy blue suit, losing three pounds an hour.
A number of people come immediately to mind when I think of
my 10 years on the Island: Seamus Tivnan, Nick Leighton, Michael Gibbs, Monique Jackson, Fiona Moseley, Conor Jennings, Peter Jones, Clayton Price, David Self, Paul Macy…wow, the list is longer than I thought.
Seriously, to those who have made our time in the Cayman Islands so productive and so much fun, I thank you sincerely.
My grand efforts in Grand Cayman I have been trying to explain to my friends and family back home
that business is going well. Of course, I try to take more credit than I really deserve. If I was being honest, I would say that, simply stated, this is a perfect time to be offering alternatives to letters of credit (LOCs). Why? Well, let’s see…the economy is in the tank, credit is hard to find and, when it is obtained, it is often two or three times more expensive, and the credit review process is a total drag.
Indeed, I stand by my previous statements over the years: use of an insurance trust in lieu of a LOC will likely save you or your
56 CAYMAN CAPTIVE
The gist of it… The concept of the insurance trust is fairly straightforward. So
is the LOC. For an LOC, the captive (generally) puts cash or cash equivalents into an account at an LOC-issuing bank. That cash acts as collateral that the LOC-issuing bank requires. In addition to posting collateral with the bank, the captive must pay a fee to the bank for issuing the LOC. Lately, LOC fees seem more like a king’s ransom.
The trust concept is one where, rather than putting your money
into an LOC collateral account and paying the bank the fee for the LOC, the captive simply puts its money directly into a trust account that pledges the money directly to the insurance company to whom they would otherwise post the LOC. Like the LOC, income generated from the trust belongs to the captive. To be clear, the captive still owns the trust assets. They are only ‘pledged’ to the carrier in the event of a problem.
Credit has never really been the
best option… We don’t have to go back very long to the days when LOCs
were considered ‘inexpensive’. I put that in quotation marks because even when LOCs were in the 25 to 45 basis point range, they were still far more expensive than the trust. Of course, there are more things to consider than just cost, but we will get to those in a bit.
If you consider a 2007 LOC that might have cost 40 BPS, then a $10 million collateral requirement would cost, if a LOC was
clients well over 80 percent of their LOC fees. But now, with the credit markets the way they are, the savings are even higher. Here is what I mean.
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