From Captive Insurance Times

Although the Cayman Islands has long existed in the upper echelons of the captive insurance industry, its reluctance to rest on its laurels is what many hold as its greatest asset

The 22nd Cayman Captive Forum is to be attended by over 1200 people and has often been populated equally by both risk managers and service providers, which is said to be unheard of elsewhere in the captive insurance industry. The client base and infrastructure is large enough to warrant this size of conference, being the second biggest captive domicile worldwide, even though the majority of its industry is made up of US healthcare and hospital system captives.

Linda Haddleton, managing director of Kane in Cayman, comments: “The global captive industry has undergone significant changes in the past decade and Cayman has worked hard to ensure that it remains an attractive jurisdiction. This includes satisfying international regulatory standards, which have a strong banking bias, while sufficiently recognising the unique risk profile of the captive model.”

It also means, according to Haddleton, recognising what onshore (predominantly US) captive jurisdictions have to offer and appropriately differentiating Cayman’s value proposition—to the many US corporations that have significant international operations, for example. Besides the island’s myriad attributes, the simple fact that it allows tax structures that the mainland US does not is a big attraction for prospective captive owners and managers.

While Cayman has long been receptive to group captives, its segregated portfolio company (SPC) and, more saliently, its forthcoming portfolio insurance company (PIC) legislation, have been introduced to facilitate the wider market with models that work well for small- to medium-sized businesses.

With the changing healthcare environment, particularly the US, the new laws are predicted to be of benefit to the healthcare groups going through restructuring and amalgamation.

At the time of writing, the PIC legislation is close to implementation, after which many in the industry feel a new wave of clients will arrive in Cayman.

One such person is senior vice president of CSI International Underwriting in Cayman, JS De Jager, who says: “We expect positive growth in new business coming to Cayman but the general feeling is that the use of PICs in the short term will come from current SPCs already based on the island converting into PICs. We are very optimistic for an influx of business. Current clients and new entities are all keen to find out when PIC law is coming into effect.”

Jason Flaxbeard, senior managing director at Beecher Carlson, adds: “The PIC law has been very well-received. This is because an offshore segregated cell company can now do anything, including the integration of US cells, Japanese cells, non-controlled foreign corporations—each of which can make different tax elections, be treated independently and can borrow capital from a core company.”

It is this diversity that makes the law appealing to prospective clients and, as a result, why so many of those based in Cayman have been instilled with confidence by its impending arrival.

The solid US relationships that Cayman has cultivated over the years remain strong, as do those with Canada.

However, now those at the head of Cayman’s flourishing industry have their eyes firmly fixed on new and fledgling captive markets.

Recent activity from the Cayman Islands Tax Information Authority reflects this work and has been primarily concerned with negotiating Tax Information Exchange Agreements (TIEAs) with other countries.

Cayman has signed a total of 35 TIEAs and another 15 are currently being negotiated. The purpose is simple: to provide a formal channel for the lawful provision of tax-related information from one jurisdiction to another.

Fiona Moseley, president at Advantage International Management in Cayman, comments: “Modern day Cayman is an open, transparent jurisdiction. As far back as 2001, Cayman was one of the first jurisdictions to sign a bilateral agreement with the US for the exchange of information for tax purposes.”

“Since then, requests for information have been made and responded to under this regime. Over the years, Cayman signed additional bilateral agreements and the numbers just mentioned indicate that Cayman continues to progress in this endeavour.”

“In 2013, Cayman confirmed its global commitment on the exchange of information for tax purposes, when it joined what was called the G5 pilot, which has since expanded to many more countries.”

The majority of these agreements have led to strengthened relationships with countries in North, Central and South America.

Haddleton comments: “When you consider that 55 percent of all captives have North American owners, while 33 percent of all captives have European owners, and that Europe has several mature and well-developed captive jurisdictions, it is not surprising that Cayman captives largely serve US risks.”

De Jager says: “Our main focus and market has always been North America, though we are presently taking initiative with organising roadshows in South American domiciles. More and more TIEAs are bing signed with Latin American countries and I see that as the new big market opening up for captive insurance business.

“They are open for this type of business, which they need for their companies to really grow.”

So, while the short term sees Cayman’s potential markets as being relatively closer to home, is worldwide market share the ultimate goal? Many in the industry would say yes, including Flaxbeard.

He says: “Given the size of the Asia Pacific market, and the relatively few mature and well-developed captive jurisdictions in that region, there is also undoubtedly massive potential for Cayman and other offshore domiciles to penetrate that market.”

Although much will depend on insurance regulations becoming more open in Asian countries and risk management techniques becoming more developed, there has already been interest, according to Haddleton, in particular for Cayman to write warranty coverage for Chinese manufacturers and exporters.

While this kind of interest will not change Cayman’s captive industry overnight, it is surely a step towards the island becoming a truly global domicile.

Whether it is targeting new markets or strengthening its legislation, it is clear that Cayman is not a domicile content with standing still.

The importance of such legislation is succinctly put by Flaxbeard, who comments: “When people ask me where to domicile their segregated cell, pretty much the first thing out of my mouth is the Cayman Islands.”

“Without the new law I would say Bermuda—that’s how important it is.”

For more on this story go to: http://www.captiveinsurancetimes.com/countryfocus/country.php?country_id=100#.VGzrrL5-RIc