Cayman captives boosted by non-traditional risk

So far, 2016 has been a very active year for new captive insurance formations, with 23 new licences granted over the first six months of the year, according to the Cayman Islands Monetary Authority. This number exceeded the issuance of licences in the whole of 2015.  

“Historically, November and December are the busiest months in terms of new captive formations, and if the same applies to 2016, the year will be another phenomenal year for the jurisdiction in terms of new captive/(re)insurance company formations,” said Ruwan Jayasekera, Head of Insurance Supervision at CIMA.

“CIMA is seeing a shifting trend in new captive/(re)insurance company formations, with more and more companies being formed to assume unrelated and non-traditional risks,” he added. Changes made to the main insurance law, supporting regulations and the regulatory framework within the last five years to accommodate sophistication and innovation have had a positive impact on the insurance industry, with insurance groups, intermediaries and hedge-funds in particular choosing Cayman to house their (re)insurance subsidiaries.”

Although global insurance market conditions remain soft, with market rates falling for four consecutive years now, the weak pricing environment which has traditionally constrained captive formation activity – because there is less incentive to self-insure when rates don’t rise – doesn’t appear to have held back activity in Cayman.

This time last year, local captive market participants were lamenting the soft insurance market, as well as the impact of Obamacare, which prompted a number of healthcare mergers and market consolidation in the US, resulting in fewer healthcare captives. Keeping the market buoyant, however, in addition to the growth in reinsurance work in Cayman, was the increased focus on cyber security and the need to cover that risk, which is not being met by commercial insurers.

“Even with consolidation taking place throughout the healthcare system in the United States by way of mergers and acquisitions, it is encouraging to see the formation of new healthcare captives to write traditional med-mal liability insurance, as well as non-traditional risks, such as cyber risks and medical stop loss,” Jayasekera said.

CIMA has said its priorities for further developing the international insurance industry in Cayman with enhancements to the regulatory framework will focus on the pursuit of Class C insurers and open market reinsurers. Currently there are 24 Class C insurance licensees in Cayman, with two open market reinsurance companies.

The other area of focus for innovation in Cayman is in attracting hedge fund based insurance and reinsurance operations to the jurisdiction. Changes to the Insurance Law introduced ten year work permits and other incentives to do more to bring reinsurance business to Cayman and there has been some success, with Aleisia Re receiving a Class D reinsurance licence in June, as just the second firm in that category in Cayman.

The latest development in the sector has seen the entry of a new speciality reinsurer, Crosswinds Re, which received a class B licence from CIMA. Crosswinds was formed by its Toronto-based parent company with US$200,000 in regulatory capital through a newly established fund structure. Crosswinds Re will act as a specialty reinsurer as part of Crosswinds’ integrated insurance, reinsurance and asset management structure, with an initial focus on the Florida property and casualty market.

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