The captive insurance industry is experiencing a period of rapid expansion and the captive business in the Cayman Islands continues to share in such growth. Barry Yetton reviews the reasons and outlines a captive company's banking needs.

Following many years freewheeling within a soft market cycle, it became clear late in 2000 and early 2001 that the re/insurance market was hardening. The gradual and then rapid collapse of global stock markets and finally the tragic events of September 11 accelerated the hardening process. As a result, it has not been uncommon for insureds to experience premium increases in excess of 100% over the past 24 months.

History has proven that when immersed in such an expansive hard market, the formation and the use of captive facilities does nothing but increase. This is very much the current experience for the Cayman re/insurance market, which boasted some 577 captive insurance companies registered as at 30 September 2002 writing more than $4bn in premiums. Over 35% of these companies are healthcare-related, demonstrating Cayman's continuing popularity with organisations engaged in all aspects of health service provision. There is no doubt that the Cayman captive market is in full swing expansion.

So, a hardening market is part of the reason why Cayman's captive business continues to grow. But what are some other reasons? The Global Reinsurance survey of April 2002 confirmed that Cayman continues to be well known for "ease of incorporation, quality of management, receptive regulation and quality of infrastructure". But underpinning this framework lies an essential foundation - the presence of a rock-solid first class banking industry.

Both the banking services available and the banking regulation found in Cayman have kept pace, and in many ways have led, the field in meeting today's re/insurance business requirements and the global concern for tight fiscal control. The stringent regulatory requirements for bank account opening and operation within Cayman continue to have little impact for the re/insurance market, which operates from a very transparent base. Indeed, such regulation simply provides additional comfort for all involved to confirm the integrity of and logic supporting the business decision and the jurisdiction of choice.

Much has been written over the years by banks claiming to offer the `one stop shop' or `complete comprehensive service' for the captive market. But what does that mean, and does such a bank really exist? The banking services required of the captive industry are a mix of tradition and innovation, but in our experience centre on a core need for attentive service. I am proud to confirm that banks in Cayman possess an enviable range of products and services to meet the needs and desires of the captive market.

Some of the key banking ingredients found in Cayman are:

  • relationship management - good three-way relationship management is a vital service and must work at both the bank-client level and the bank-insurance manager level. It is advisable to find a bank that offers a single point of contact with both an extensive knowledge of the re/insurance industry and a good relationship with the insurance management community;

  • bank account structure and basic service - it is surprising that such a fundamental requirement should be worthy of mention, but getting it right is crucial. The account structure needs to be accommodating and allow for such basics as efficient payment services, whilst catering to account variations such as segregated cell structures. The bank chosen must offer all traditional payment and settlement services and also have a record of error-free performance;

  • local stability - another key ingredient is to ensure alignment with a bank that not only has a good history within your jurisdiction of choice, but also has every intention of remaining there as long as you do. Look for a strong local business presence to provide this reassurance;

  • global structure - Such exposure can also be very important, especially when coupled with captive and re/insurance related experience;

  • investment management - access to knowledgeable and seasoned investment management is essential. Ideally, such expertise should be found in-house at the bank of choice. Our experience has been that we invariably see an investment management need, if not at the outset then shortly thereafter, and a local team with good industry knowledge is invaluable;

  • investment products - to complement local investment management capabilities, look for proven and award-winning investment products such as an AAA-rated money market fund. Such products provide the flexibility to cover liquidity, cash management, letter of credit collateral and equity management needs;

  • letters of credit - a traditional staple for the re/insurance market and a Cayman speciality;

  • reinsurance trusts - an alternative to letters of credit; and

  • electronic and online banking - we are seeing a significant demand from the captive market for this ability. The service allows access to all account data for the principal and/or the insurance manager, with the option of allowing transactions to be authorised online. Hence, a transaction could be input in Cayman by the insurance manager and authorised by a principal in the US. Access control remains with a designated individual at the client level, and if desired the ability to transact may be turned off. The ability to review account history and verify transactions have provided very worthwhile efficiencies for both the client and the manager. Many banks also host a comprehensive website and this too offers efficiencies providing an extensive library of information and offering tools such as download of application forms. The advent of such electronic delivery channels probably represents the most significant recent development for the Cayman banks in terms of service.

    Generally, banks in Cayman are well known in the offshore marketplace and boast significant experience and expertise in the re/insurance market. Cayman has been successfully servicing an increasing offshore market - and for much of that time a thriving insurance market - for more than 30 years. What has developed is a solid range of core banking products that are professionally managed and presented with a well-chosen selection of optional services.

    Where now? Having chosen the Cayman Islands as your domicile of preference, following the recommendation from a reputable insurance manager should lead you to a shortlist of banking providers. The bank's relationship manager will then assist with the selection of the most suitable products and services. Choose carefully, though - the `one stop shop' is out there.

    By Barry J Yetton

    A career banker Barry J Yetton, ACIB is head of banking at Bank of Butterfield International (Cayman) Ltd, in Grand Cayman ( ), where he is responsible for retail banking, credit, card services, treasury, and corporate and electronic banking.