THE CAYMAN ISLANDS
The Cayman Islands has grown from strength to strength as a captive domicile of some repute. James Rawcliffe of IMAC discusses its history and the developments that have been integral to its success.
T
he Cayman Islands is the second largest domicile by captive numbers and is highly regarded for the quality of client service and its attentive approach to captive insurance regulation. This article seeks to provide clues
from the past as to how Cayman has arrived at its present position, together with insights regarding Cayman’s prospects for the future.
The story begins in 1967 with two gentlemen, William S. Walker, attorney, and Paul Harris, chartered accountant, sharing adjoining offices in the Rembro building on Cardinal Avenue in the centre of George Town—the first practitioners of their respective professions to arrive in Cayman. Walker and Harris were not only attracting clients from the US and the UK: Walker was instrumental in the drafting of the first trust, company and exchange control legislation. The growth of Cayman’s client base was helped during 1967 by early signs of Bahamian independence from the UK under Lynden Pindling’s government, and the corresponding migration of its thriving offshore business to other domiciles, including Cayman. When the government acquired a majority stake in Brac Airways (later renamed Cayman Airways) from Costa Rican airline LACSA, in 1968, the Islands became more readily accessible, with communications further helped by the development of telex services by Cable and Wireless.
Two key legislative events helped consolidate Cayman’s early position. First, the 1971 Currency Law and subsequent amendments led to the creation of the Cayman dollar and its pegging against the US dollar, enhancing Cayman’s standing as an offshore centre. Second, the 1972 Constitution established the UK Privy Council as the final appellate body, which strengthened the independence and solidity of the Cayman legal system in the eyes of clients.
Captives began arriving in the Cayman Islands in the mid-1970s, mainly from the Bahamas where a new insurance premium tax was making captives there uncompetitive. Fred Reiss, considered to be the father of captives, formed Transnational Limited, the first captive management company, and other major players such as Johnson & Higgins soon followed.
With the growth of captive business came the need for appropriate legislation, and that was where the captive story really began. While captives had begun setting up in the mid-1970s under general companies law, they were largely unregulated until the enactment of the new Insurance Law in 1979. Enforced by the Superintendent of Insurance, John Darwood, Cayman’s early approach to insurance regulation was the forerunner of today’s Cayman regulatory best practice, combining robust regulation with accessibility to prospective clients and readiness to promote the domicile. This attracted high quality new captives, while at the same time driving away several captives of lesser quality.
In 1976, the Harvard Medical School chose Cayman over Bermuda for the location of its captive, CRICO, providing Cayman with instant credibility. Thus began Cayman’s reputation as the leading domicile for health care, providing coverage and expertise for hospitals, health authorities and doctors’ groups. This success might not have been achieved were it not for Bermuda’s scepticism about Harvard Medical School’s desire to include external doctors credentialled to use Harvard’s facilities, in addition to its own employed doctors, in its captive programme.
Years of consolidation The growth of the captive market continued through the 1980s, encouraged by the hardening rates in the US insurance market that were prompted by the bankruptcy of several US property and casualty companies. This in turn helped develop the Islands’ tourism sector, as captive principals and vendors began purchasing real estate.
The Cayman regulatory framework developed further in 1993 with the formation of the Financial Services Supervision Department, which then combined with the Cayman Islands Currency Board in 1997 to form the Cayman Islands Monetary Authority (CIMA). CIMA’s remit includes the regulation of banks, mutual funds and insurance companies, with division heads and heads of supervision reporting to the board of directors of CIMA.
CICA | Forty years of captive leadership 115
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