The Cayman Islands have a reputation as a centre for healthcare captives, but there is a lot more to the domicile than that.
Despite the soft commercial insurance market, captive growth in the Cayman Islands not only continues but accelerates. In 1998, the Cayman Islands Monetary Authority issued 52 new licences, two more than in 1997, and only 16 were cancelled, compared to 19 in the previous year. The result was a net gain of 36 new captives bringing the total to 485 at 31 December 1998.
Allowing for some variation in the definition of captive, the Cayman Islands still were responsible for approximately one-sixth of the world's growth in captives estimated at 305 worldwide in 1998 by Tillinghast Towers-Perrin in the 1999 edition of the Captive Insurance Company Directory in the domiciles it tracks.Originally best known as a centre for healthcare captives, the Cayman Islands have also become a force in the world of alternative financing vehicles where special purpose vehicles (SPVs) are set up to securitise catastrophe reinsurance and other financing deals. By the end of 1998, there were 20 of these entities licensed in the Caymans. According to Mary-Lou Gallegos, chief analyst, insurance, for the Cayman Islands Monetary Authority, capital markets/securitisation deals are expected to provide further growth in 1999. She says: “Cayman has emerged as the number one domicile for establishing alternative financing vehicles, such as the catastrophe bonds which have been well publicised.”
Another new area is the development of segregated portfolio companies (SPCs), a type of rent-a-captive where a professional manager or third party sponsor sets up a company to handle risks for multiple sponsors. Enabling legislation was passed in mid-1998, and five new SPCs had been licensed by the end of the year.
The Cayman Islands Monetary Authority has indicated that the existing Insurance Law and insurance forms' regulations are currently under review and this should be completed during 1999.
Cayman provides the most extensive statistics concerning its captive industry of any domicile and the most rapid. At 31 December 1998, there were 485 Cayman captives which wrote a total of $2.332 billion in premiums and had $11.099 billion in assets. The vast majority of the domicile's captives have North American parents (82%), followed by Caribbean and Latin American (10%) and Europe (6%).
Pure captives are the largest class by number (61%) and by premium volume ($1.607 billion), association captives are the next largest group by number (18%) but not by premiums ($193.3 million). The 37 group captives (8%) produce the largest premium volume each with a total of $283.3 million.
Healthcare remains the largest single class of business, written by 167 companies and responsible for $620.1 million of the total premiums. Workers' compensation is the next largest class, written by 96 companies and producing $489.1 million premiums, followed by property with 69 companies writing $413.2 million. Forty-one companies write general liability business but only at the low level of $71.0 million in premiums.
Discovered by Christopher Columbus in 1503 on his fourth and final voyage to the new world, the Cayman Islands were ceded to Britain by Spain in 1670 and today remain a British crown colony with a governor appointed by the Queen. The law is based on English common law supplemented by local statutes. The population of the islands is over 27,000 of whom all but about 2,000 live on Grand Cayman.
In the absence of income, profits or capital gains tax, the government relies on other forms of revenue such as import duties, stamp taxes, tourist taxes and licence fees to raise revenue. Tourist and finance are the main industries. George Town, the capital city, is home to some hundreds of international banks as well as its growing insurance community.
The Cayman Insurance Managers' Association was formed in 1981 after the introduction of the Insurance Law 1979. Its role is to liaise with government and other professional bodies on matters relating to the offshore insurance industry.
Like other jurisdictions with low tax rates, the Cayman Islands are well aware of pressures in the European Union and the OECD in relation to what some members of the OECD regard as “harmful tax competition”. Having taken over the chairmanship the Caribbean Financial Action Task Force (CFAFT) in December 1998, the Cayman Islands financial secretary George McCarthy led the establishment of a working group to consider ways of addressing concerns over tax competition issues. The group is expected to make its first report in May.
The Cayman Islands have also been active in the fight against money laundering. They were the first finance centre in the Caribbean to introduce legislation which allows the proceeds of serious crime to be restrained. At the end of 1998, the government removed the fiscal exemption clause from the 1996 Proceeds of Criminal Conduct Law (PCCL) which had previously stopped authorities from co-operating with other jurisdictions concerning fiscal offences. According to an official press release, the island's authorities will continue to assist foreign investigations into alleged offences, provided it is also a crime under Cayman law.According to the acting attorney general Samuel Bulgin: “This change to the PCCL law has been developed in close consultation with the private financial sector to ensure the legitimate rights for privacy are carefully balanced with the need for transparency and disclosure in the public interest of defeating crime.”In terms of protecting Cayman's reputation as an insurance centre, the government has given powers to the head of insurance supervision to demand higher net worth requirements than the legal minimum for companies writing third party business, to set premium to net asset ratios and to decide which assets and liabilities are allowable for net worth.
A company's licence may be suspended or revoked if the authorities decide that it is carrying on business in a way that is detrimental to the public interest or that of its creditors or policy holders, or if it is breaking the law. Directors or officers of companies found to have contravened the law can face fines up to $6,000 or a year's imprisonment or both. Making false representation under the law attracts a fine of up to $12,000 or two years' imprisonment or both.