So far, 2001 is shaping up to be a landmark year in Cayman, which has not only seen the Cayman Islands removed from the Financial Action Task Force (FATF) list, but has also seen a mini-explosion in growth. Twenty new companies had been formed and licensed at, June 30 2001, and another 25 companies were presently under review for licencing (awaiting finalisation of their start-ups). In comparison with the similar period in 2000, this represents a 29% increase in activity year-on-year.
The last year has also seen a wider application of Cayman's segregated portfolio company (SPC) concept. Almost a quarter of the captives set up in the last year took this form. At the present time, there are 33 such facilities, with a total of 144 portfolios or cells. Since the SPC concept was only introduced in 1998, this represents steady growth which is gathering momentum. In some cases, existing captives have been converted into SPCs to respond to a new business opportunity.
The Cayman Islands are the domicile of choice for 527 captives writing more than $3.7bn in premiums and totalling $15.7bn in assets. Why is this?
Certainly, Cayman's captive market is in expansion. The most common theme underlying captive formation so far this year has been hardening markets. A closer examination of the growth shows that ten companies are being formed in the US healthcare sector, arising from the withdrawal of coverage and severe rate hikes. Even longstanding relationships between the insured and insurer are unravelling. The long-term care industry has been particularly hit hard with the toughening market. In the Cayman Islands, local captive management expertise in the area of healthcare is resulting in strong, structured captive solutions.
Other formations have arisen principally as a result of tightening in workers' compensation and property rates.
The types of organisations that form captives are highly diversified. Industries range from hospital systems, finance, retail, and automotive to heavy industrial, chemical and public utilities.
Cayman's appeal as a captive domicile has two main ingredients. Firstly, the service infrastructure is very well developed over a broad range of financial services. Cayman is, after all, the fifth largest financial centre in the world. Secondly, the regulatory style continues to recognise the business purposes of licensed operations.
The infrastructure of the Cayman Islands is a major factor. Every licenced captive company must have a licenced insurance manager and must appoint an auditor at the time of their application. The insurance managers are critical to the captive process and provide not only the necessary duties of ensuring compliance and operational management, but are also an essential element of the recent growth due to their professionalism and innovative approaches to risk management. The Cayman Islands has an extensive network of insurance professionals, major accounting firms and law firms with unparalled experience to assist in this process.
The insurance managers are key to both of these aspects of Cayman's achievements. Their client focus ensures that all involved are clear about objectives. As a result, it is unusual for new applications and business plan changes to be declined by the authorities because they have been subject to a thorough sifting process first.
On the regulatory front, 2001 was a particularly active time for offshore financial centres, as far as international scrutiny was concerned.
In June 2001, The Cayman Islands was officially removed from the FATF list of non-co-operative countries. The confirmation that the Cayman Islands is fully compliant with all of the FATF's 25 criteria used for the evaluation off non-co-operative countries and territories was made on 22 June , 2001 following an on-site inspection of Cayman's regulatory regime and the financial industry on 30 April and 1 May.
The inspection was undertaken by a team from the Review Group of the Americas of the Financial Action Task Force. The purpose of the inspection was to assess at first hand how the legislative changes that have been enacted in the Cayman Islands work in practice and to what extent they meet the deficiencies identified by the FATF in June 2000.
Will flexibility remain?
A small group of critics may convey scepticism that with new legislation and increased presence of overseas bodies such as the FATF, the Cayman Islands may no longer be able to retain the flexibility that has contributed to the flourishing industry.
This, of course, has no basis in fact but strong roots in fear. It is still possible to have a business plan amendment reviewed, discussed and processed in as little as two working days, assuming all the proper documentation is provided. Whilst there have been certain changes in the information required prior to the approval of directors and shareholders, these changes will have minimal impact.
Cayman Islands regulation has not fundamentally changed and regulators continue to be approachable and responsive. The insurance sector is strong and thriving, and our job as insurance regulators is not only to ensure solvency, but as importantly, it is to provide an environment where potential and existing captives continue to expand and thrive with the minimal amount of bureaucracy and red-tape possible.
So far in 2001, this goal has been achieved, and looks like being reinforced to generate another excellent year for Cayman captives.