The Lowdown on the Cayman Islands Insurance Industry
The Cayman Islands Insurance Law was first passed in 1979, since then the jurisdiction has become a major centre for international insurance business. Cayman is the second largest domicile for captive insurance companies and is the number one domicile for healthcare captives. The Cayman Islands Monetary Authority (CIMA) currently regulates approximately 680 insurance companies with nearly US$19 billion in annual premiums and US$66 billion in assets.
This success can be attributed to:
- An abundance of banking, legal and accounting expertise
- A consistent and robust insurance law
- An approachable regulator
- A politically stable jurisdiction
What is a Captive Insurance Company?
A Captive is an insurance company licensed under specific insurance laws with the objective of insuring the risks of its owners. A Captive allows shareholders to self-insure against future losses, whilst improving their risk management, cash flow and managing the cost of insurance rather than using the general insurance market.
Types of Captives
- Association Captive – insures the risks of the members of a trade or other association
- Single Captive – insures only its parent or associated companies’ risks
- Group Captive – insures the risks of a group of companies that may not be associated with each other and may or may not be in the same industry
- Segregated Portfolio Company (SPC) – a company which forms individual ‘cells’. These structures are often used where an organisation might not be large enough to justify establishing its own fully-fledged captive, each cell’s assets and liabilities are segregated from other cells and each cell can insure different risks.
- Healthcare, professional medical mal-practice
- Workers Compensation
- Property and General Liability
Reasons for Forming a Captive
- To minimize costs by the elimination of the traditional insurance company overhead
- To take control of your insurance costs rather than paying the market rate.
- To retain profits that would have otherwise been paid to commercial reinsurers in the form of premiums in excess of the amounts repaid to cover losses.
- To have freedom over investment into which the premiums of the Captive may be made
- To reduce risk by selecting only quality insureds known to each other (as in the case of some group or association captives).
- To insure risks which would otherwise be uninsurable or cost prohibitive and to design custom policies.
- Access to the re-insurance market.
- The reduction of Government regulations and restrictions by seeking out a favourable jurisdiction for the registration of the company.
- Timing of premium can be determined to suit the parent's cash flow requirements
- A Captive can help convert a typical cost item into a potential profit centre whilst adding increased flexibility to a Company’s insurance coverage.
The starting point for forming a captive insurance company involves a feasibility study, analysing the insurance program of the organisation, including status and costs, and ascertaining whether it would be beneficial to use a captive structure. An actuary is generally used at this stage to assist with forecasting loss ratios and funding requirements. If the structure is determined to be feasible, the next step would be to draft a business plan and pro-forma financial statements to provide to CIMA along with the required application form and documents.
IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please contact us.
Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.