Cayman's acceptance of the highest international standards has been nothing but good news for all concerned, says an insurance banking specialist.
Global Reinsurance:Tell us first something about your clients.
Eugene Justus: We have a number of healthcare companies as clients, but they only represent 5% of our client base. Historically, our clients are primarily US companies, among them a large number of Fortune 1000 companies with captives in the Cayman Islands and other onshore and offshore jurisdictions. Increasingly, over the past five years, we have seen increased interest from Latin American and Asian multinational companies who have turned to the Cayman Islands as a domicile. Part of this growth derived from Hong Kong coming under the control of the Chinese government, when a number of companies looked to Bermuda and the Cayman Islands as British crown colonies in which they could locate or relocate. Similarly, with Latin American and Asian companies, the reputation and manner of regulation in the Cayman Islands has proved to be very attractive.
Global Reinsurance: How have recent legislative changes in the Cayman Islands affected your business?
Eugene Justus: It is clear to us that the legislative changes have increased the attractiveness of the Cayman Islands as a domicile to our clients, in the sense that it provides additional flexibility for them. The acceptance by Cayman that it will maintain the highest international standards has put it on par with Bermuda, in the eyes of many of our clients. For many companies, following the events of September 11, the perception of doing business internationally was that the risks had increased. The approval of the Cayman Islands by the OECD helped to mitigate risk on the part of our clients. So, we see Cayman's position as very advantageous to the jurisdiction.
Global Reinsurance: Are the offshore jurisdictions forming two separate groups? Cayman, Bermuda and one or two others, `the good guys' and another group that cannot operate under the same high standards?
Eugene Justus: I think that Cayman and Bermuda are widely perceived as the leaders. Barbados is seen to be serious about regulation, and the British Virgin Islands is also becoming a first class jurisdiction, under the capable leadership of insurance regulator Bill McCullough, who has reassured potential captive owners of its regulatory integrity. There are other jurisdictions that may not join the club on the banking side.
Global Reinsurance: Comerica is an American bank. How will the Patriot Act affect you?
Eugene Justus: The Patriot Act has actually been beneficial to us in our business, because, in this environment, our clients have increasingly examined the reasons they want to go offshore. The Act forces them to carefully think through and review their strategic business plan. Our clients are not locating offshore for tax reasons. They are there for sound reinsurance reasons. That means that leading offshore domiciles such as Cayman, with well-established infrastructures, will remain attractive. We always advise our clients to carefully examine their logic for going offshore.
Global Reinsurance: First reaction: how do you think the US mid-term election results will affect the offshore community?
Eugene Justus: The Republicans are pro-business, and the election results can only be advantageous for well-regulated jurisdictions. That said, military action in the Middle East in the short run would increase uncertainty and could dampen plans for US companies to incorporate offshore, but the soundness of the offshore model is so well established, and the advantages so well determined, that I do not see much potential damage in the immediate future.
Global Reinsurance: Should Cayman seek to attract physical presence re/insurance companies?
Eugene Justus: One of the primary attractions of Bermuda is the high-quality of leading companies such as ACE and XL Capital. Would it be advantageous for the Cayman Islands to attract such companies? Tremendously so. It would make it easier for captives and brokers to place the required reinsurance. I believe that the companies could establish strong strategic alliances with the captive managers.
Global Reinsurance: How are recent developments on the banking side affecting the insurance industry?
Eugene Justus: From the banking side, I see two developments that are directly affecting our insurance clients. One: because stock markets have declined, the market value of many of their investment portfolios has declined. The volatility of markets has increased. A number of captives are therefore establishing lines of credit for liquidity purposes, to enable them to borrow funds on a short-term basis to pay claims if it would be disadvantageous to liquidate their portfolios and turn unrealised losses into realised losses. This is a relatively new trend, and a strong one. Low interest rates, obviously, play a part. Two: given the sharp increases in insurance premiums, some of the largest captives have approached the banks to put in place credit facilities to self-finance the top layer of risk, because the cost of credit can be dramatically lower than the premium rates. This is a new phenomenon in the convergence of the banking and insurance sectors.
Global Reinsurance:Do you encourage your clients to attend conferences such as the upcoming captives conference in Cayman?
Eugene Justus: You might be surprised: many of our clients learn about the Cayman Islands through the captives conference in Cayman each year. We highlight the conference to our clients and potential clients because it allows them to meet the regulators, service providers and executives from other firms who already have a captive in the Cayman Islands to put a face to the name and exchange ideas with people who are already there. There is nothing quite as effective as one CEO speaking to another CEO. They can share a wealth of experience with each other. The conference is much more important than you might believe, and should be expanded. Perhaps the most important advantage of the conference is that it provides an opportunity to meet many of the world's leading captive experts in one place at one time.
Carlyle E Justus
Carlyle E (Eugene) Justus is first vice president, global insurance banking services at Comerica Bank, based in Detroit, Michigan, manager of Comerica Bank's Cayman Islands branch, and a director of Comerica Assurance Limited, the bank's Bermuda-based captive.