THE CAYMAN ISLANDS
“Cayman’s early approach to insurance regulation was the forerunner of today’s regulatory best practice, combining robust regulation with accessibility to prospective clients and readiness to promote the domicile.”
During the 2000s Cayman’s regulatory structure faced scrutiny from international regulatory agencies such as the Financial Action Task Force as a result of a 1998 Organization for Economic Cooperation and Development report on harmful tax practices. In June 2000, Cayman was listed as ‘uncooperative’ in its approach to international money laundering, and it took the passing of several pieces of emergency legislation for this label to be removed.
As part of this process CIMA became independent of the Cayman government and thus acquired authority to approve new captive licence applications (previously, licence applications were heard by Cabinet).
Another key test of the domicile’s mettle was Hurricane Ivan in September 2004, a Category 4 storm which, despite its fury, did not seriously disrupt the captive industry. In fact, CIMA resumed captive licence approvals mere days after the storm. The speed of Cayman’s recovery compared favourably with that of other Caribbean islands, further enhancing the Islands’ reputation as a resilient domicile, and the event led to improved building codes for homes and offices. This generated greater confidence among clients in Cayman’s ability to handle future catastrophic weather events.
They were more positive changes in recent years as Cayman sought to cement its position as a captive market leader. A new Insurance Law was promulgated in 2010, which took the existing legislation and enhanced the application of a risk-based approach to regulating captives depending on the degree of third party risk. It also recognised special purpose vehicles, whose prodigious growth has helped sustain the number of captives during the recent worldwide recession and soft market.
The new law is also intended to promote the arrival of new reinsurers, following the success of Greenlight Re. At the end of 2011 the Cayman Premier, McKeeva Bush, announced changes to the Immigration Law that would fast-track work permit approvals and longer-term limits for reinsurance professionals, an act which did not go unnoticed in Bermuda.
Meanwhile, Cayman’s response to the Solvency II proposals has been a “wait and see” approach, one that has sought to avoid an additional regulatory burden for captives without first assessing the implications. Also warranting a mention is the willingness of Cayman to accept its international tax obligations, the government having signed 27 Tax Information Exchange Agreements (TIEAs) with sovereign nations, including a significant 2011 agreement with Canada.
116 CICA | Forty years of captive leadership
The domicile finds itself in a strong position, and new licence applications in 2012 show signs of returning to pre-2008 levels. Early reports from CIMA indicate that five licences were approved in January 2012 and a further four were under consideration in February. Another key indicator of expected growth is the 1,249 participants who attended the Cayman Captive Forum in late 2011, exceeding the previous record, set in 2010, of 1,044. Another positive sign is the retention of a growing cadre of highly skilled professionals, several having left Cayman only to return subsequently due to the quality of work and the lifestyle. A growing number of these professionals have now attained their permanent residency and have decided to remain part of the Cayman captive industry.
Cayman is well placed to take advantage of the worldwide economic recovery and the new markets that are opening up. The 2011 signing of its TIEA with Canada gives Canadian companies the same taxation incentives for setting up captives in Cayman as currently enjoyed by Barbados. The decision by Bermuda to adopt Solvency II equivalency has caused an increase in enquiries regarding re-domiciliation of existing captives away from Bermuda, and possibly more will emerge from domiciles in mainland Europe. Other future areas of growth are evident in Latin America and South American countries—Argentina and Brazil in particular—as governments open up their domestic insurance markets.
Cayman’s importance as a domicile—for medical malpractice in particular—is already well established, but opportunities are emerging for which Cayman must not solely rely on its past reputation. Cayman’s future growth will depend upon learning from its captive domicile competitors, especially with their well-drilled publicity arms sending dedicated industry teams and government representatives to speak to key industry heads in Canada, the US, Latin America and Europe. Cayman is poised to trail-blaze its own path under the astute leadership of its government and regulatory officials in partnership with private sector industry heads, in a manner which underlines Cayman’s uniqueness. As we enter 2012, early signs of such an approach are encouraging. l
James Rawcliffe is a member of the marketing committee of the Insurance Managers Association of Cayman. For further information on IMAC please contact the general manager, William Forsythe at:
william.forsythe@
caymancaptive.ky
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