One would think having a difference of 13 hours in time zones might be a barrier to transacting business, however, in the digital world the time difference between most Asian countries and the Cayman Islands has proven not to be an inhibitor.
Cayman, being a premier financial hub, has already established itself as a key provider of financial services for many jurisdictions, most notably the United States, Canada, Europe, and Latin American countries. Asian companies have also long been familiar with Cayman's fund presence being home to more than 11,000 regulated investment funds and several thousand equity funds.
This success can be attributed to Cayman providing an effective, neutral platform and being a leader in trust and fiduciary services addressing the needs of ownership continuity and wealth structures, including family offices. Additionally, some companies have established Variable Interest Entities (VIEs) to facilitate stock offerings. A significant uptick in interest for these types of offerings has been realised over the past few years in the reinsurance and captive insurance sector. Cayman has a long established and robust regulatory environment overseen by the Cayman Islands Monetary Authority (CIMA). CIMA subscribes to several international regulatory bodies and has received reviews from the Caribbean Financial Action Task Force (CFATF), International Monetary Fund (IMF), and Organisation for Economic Co-operation and Development (OECD) to cite a few and is also a long standing member of the International Association of Insurance Supervisors. As of June 30, 2017, CIMA disclosed annual premiums from the international insurance sector of US$12.4 billion, with assets of US$62 billion for 701 licensees making it the world's second largest domicile for international insurers by count. In addition, some 146 of the 701 licensees are incorporated as Segregated Cell Companies (SPCs) which number in excess of 600 individual cells. At this time, CIMA has not opted for Cayman to become a Solvency II equivalent domicile. The domicile provides the flexibility to embrace capital models that are appropriate based upon the captive's risks. In addition to a sound regulatory environment, Cayman boasts a best-in-class repertoire of service providers ranging from each of the Big Four accounting firms and several others auditors, lawyers, banks, and insurance managers. Asia has approximately 148 captives domiciled within its region according to Captive Review. While no specifics were provided on the number of captives located in other jurisdictions further afield with Asian parents, one can speculate as many again if not more. Historically, it has been large corporations with an international presence, especially from the manufacturing sector, that have sought to establish a captive to cover their overseas operations since commercial insurance within the Asian region has been relatively inexpensive in comparison to other jurisdictions (perhaps due to different tort systems in those regions). Asian companies are realising that a captive can serve as an innovative facility to address their overseas operations' regulatory obligations while providing a sensible facility to efficiently address their cash flow objectives and to deploy their internal models. While Cayman is known for its leadership in healthcare captives, it is also known within the insurance industry as the leading domicile for the formation of group/member owned captives.
These captives are licensed as a Class B (i) which is considered a wholly owned pure captive insuring the member shareholders risks (up to 5% of unrelated business). Group captives are typically associated with a homogenous class of exposures as in the initial stages of formation they are usually supported by industry associations. However, heterogeneous group captives have also provided an opportunity for companies from different industries to participate in a group programme which typically offers them lower premium costs as the members are best-in-class and diligent in their management of loss control measures. Group captives are typically structured into two (sometimes more) funding levels where the membership pools their losses in the expected loss layers while transferring their excess losses to the commercial insurance market. The group captive concept has proven to be a successful model mostly for US small to mid-size companies. This could offer new opportunities for Asian companies that have not yet adopted the group captive approach.
- The Cayman domicile is gaining traction with the parents of Asian companies seeking to establish captive insurance subsidiaries, particularly in the Life Sector. The following are some of the steps that are needed to have a smooth and successful application process and secure an insurance license to write Life/Annuity products:
- A robust business plan containing a thorough description of the product to be underwritten by the captive including: details of the pricing model, including actuarial support on the reserving methodology as well as a detailed description of the investment products.
- Details on the distribution process, including any third-party sales force, the territories where the product will be sold, and how the captive will comply with the target territories insurance and consumer protection laws.
- Due diligence measures that will be implemented to screen policyholders and the third parties selling the product for Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) procedures.
- Description of the claims handling process, including credential details on parties handling the claims and the AML/CTF measures.
- Description of handling procedures for complaints, including details on the process for resolution.
Additionally, as part of the applications process for a Class B (iii) insurance license, the business plan should contain at a minimum a description of the Corporate Governance documentation including a Risk Management Framework, an Outsourcing Policy (and functions), a Data Retention Policy, a Succession Policy, and the Fitness & Probity of the Directors & Officers will need to be addressed in their Personal Questionnaire.
The items above should serve as a starting point for the thought process in preparing to secure a Class B insurance license in the Cayman Islands, whether the company is based in Asia or seeking to establish a captive to target Asian Life Insurance business. As more Asian companies show interest in the Cayman insurance sector, the domicile, having successfully served the interests of captive owners in other jurisdictions for more than 40 years, stands ready to assist those who are 13 time zones away.
Clayton Price is Managing Director and Office Head at Marsh Management Services Cayman. Clayton has more than 30 years of expertise in the industry, working in Atlanta, New York and Bermuda. He has responsibility for 30 employees in Cayman with over 110 captive and insurance companies under management.
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