Every month or two for the past year, it seems, an international agency has stepped forward to congratulate the Cayman Islands on the prudent way in which its financial sector is managed. And then, every other couple of months, another such agency has taken the stand to castigate Cayman for exactly the same thing.
You might forgive the men and women who populate Cayman's international business industry if they had become a little embittered by the process. There have been times in the past year when it has seemed as if this agency or that was not acting with the integrity it casually accused Cayman of lacking.
But anyone who knows Cayman's international business sector senses very little in the way of bitterness. The usual response, when criticisms are raised, is that Cayman must not have done a good enough job of explaining how things work.
The truth is that business does work in Cayman and the highest international standards apply. The insurance business works particularly well. Regulated by officials with extensive market backgrounds, serviced by knowledgeable and helpful market professionals who are ready to consider new ideas, Cayman has proven its worth during the past two decades and now stands as a model for the regulation of offshore insurance sectors around the world.
Cayman has taken the lead in the securitisation of risk. Its segregated cell legislation has taken hold, causing other jurisdictions to pass their own legislation in a show of the sincerest form of flattery. Cayman is a market leader in healthcare captive insurance. Slowly, physical presence reinsurance is beginning to spring up, backed by hundreds of millions of dollars in capital. Cayman's life business, particularly variable life and annuities, continues to thrive, with a special attraction for US individuals. Many tout universal life insurance as the “next big thing”.
The international initiatives presently under way may reduce the number of jurisdictions in the offshore insurance business. The reputations of Cayman and its only meaningful competitor, Bermuda, are head and shoulders above the other offshore communities, especially in the field of insurance, and neither is likely to be threatened in the long run.
As the insurance industry has taken root in Cayman, a corps of professionals - in insurance, accounting, the law and corporate management, as well as on the regulatory side - has learned the knack of innovation. Around them, the role of the insurance industry is also changing. The concept of bancassurance, the mingling of the disciplines of banking and insurance, and the idea of enterprise risk are broadening the brief and reach of the global insurance industry. Cayman deserves its share of the credit for these developments.
In life, the greatest strength can often be regarded as the greatest weakness. Cayman's regulatory flexibility, which has been a key factor in attracting companies to its register, has been interpreted by some as a laissez faire approach. Such a view could not be further from the truth. Insurance regulation in the Caymans is by no means a rubber stamping process, no matter how open and friendly chief regulator Clive Thursby may appear from the words he has contributed to these pages.
Those wishing to incorporate captive insurance companies in the Cayman Islands must first present themselves to the regulators. Their probity and their business plan are submitted to a detailed inspection, among which one of the most important elements is a comprehensive consideration of the project's viability. Here is prescriptive regulation in action; it is not enough that backers have impeccable credentials, they and their documentation must convince the regulatory authorities that their plan will work. To make that assessment requires of Cayman regulators an intimate knowledge of the market.
If one must satisfy the regulators before even earning the right to start a business, how can the idea have arisen that Cayman is a soft option? The answer, of course, is through a lack of information. Those in the insurance industry know Cayman for its strengths; some of those outside the industry know little more of the real world of offshore business than the image Hollywood and others sometimes portray.
A lack of corporate taxation is among Cayman's chief advantages, even if its US business is ultimately taxed in the US. Tax is not levied on income accumulated during the life of the risk, which affords managers the opportunity to take advantage of compound interest and wider investment possibilities year-on-year, a basis that history shows can achieve better results. Those used to paying from a third to a half of their income in direct taxes jump to the conclusion that if Cayman is not taxing international enterprise, something else must be going on. They are right, only insofaras the “something” is a different, indirect method of taxing economic behaviour.
A lack of knowledge has underpinned an attack on those with the greatest knowledge; the irony would be almost enough to prompt a wry grin, were the consequences of ignorance not so serious.
Roger Crombie is the Bermuda correspondent for Global Reinsurance. A journalist and a Chartered Accountant, he writes on insurance issues throughout the Caribbean and beyond for publications in Bermuda, Europe and the US.