Captive Domicile Update: Cayman Islands

This article is provided by Strategic Risk Services. Contact details for the company can be found at the end of this article. In January 2005, the Cayman Islands Monetary Authority (CIMA) reported that it had licensed 76 new captives during 2004, bringing the total number of captives in Cayman to 694. This is the second highest reported growth in captive licenses in a domicile in 2004, marginally behind Bermuda. Cayman's growth is even more impressive in the light of: ? The number of Segregated Portfolio Companies (SPCs) in Cayman. Individual cell programs are not included in the number of captive licences. ? The damage sustained by the domicile from Hurricane Ivan during the year. These captive license figures are clear evidence of Cayman's position as a leading captive domicile worldwide and its current popularity. Regulatory Environment - Cayman's captive law was first enacted in 1979 and has been amended several times since. Its licensing is quite unique in that it recognizes only two broad categories of insurer and has considerable flexibility over capitalization requirements. ? An unrestricted class B license which permits all types of insurance. A statutory minimum net worth applies to Class B insurers: $120,000 for general business and $240,000 for long-term (life and annuity) business. ? A restricted class B license, which limits underwriting to the risks of the insurer's parent or member. There is no statutory net worth requirement. All proposed insurers must show that they have sufficient capital to support their underwriting. Satisfying this requirement is likely to determine the required capitalization for prospective captives. The structure of the regulation provides considerable flexibility in evaluating each situation on its own merits. Why Cayman? We see three main reasons why captives should look to Cayman as a potential domicile. ? Industry expertise: Cayman is the premier domicile for healthcare captives worldwide. This specialty developed from Cayman's first activity in the captive world with the licensing of the Harvard Medical Institutions captive and has continued ever since. Cayman has developed an infrastructure of regulators and service providers that have knowledge and experience in this industry. ? Flexibility: Cayman's regulation has more flexibility in its structure than other domiciles. Prospective insurers, both restricted and unrestricted, may find this structure more receptive to the unique needs of their proposed ventures. ? SPCs and group captives: Cayman was one of the first domiciles to introduce SPC legislation in 1998. Since then, there has been considerable growth in SPCs aided by the flexible regulation structure of Cayman's insurance law. This flexibility has also encouraged the growth of group captives. Cayman is a strong market for insureds looking to participate in an existing facility, with or without risk sharing, or sponsors looking to provide these facilities. Looking Ahead ? We believe Cayman is very well positioned to take advantage of two strong trends in the captive market: the continued need for captive solutions in the healthcare sector and the progression of captive solutions into the middle market through the use of SPCs and group captives. Cayman faces some strong competition from new and expanding onshore domiciles. The political pressure for US companies to stay onshore has not harmed Cayman's recent growth and we anticipate that pressure will wane following the Bush re-election and an improving US economy. As the islands fully recover from Ivan and CIMA and service providers become fully resourced to proactively develop captive business, we believe the high levels of growth seen in 2004 will continue. Cayman Islands Captive Fact Sheet Applicable Legislation ? The Cayman Islands Insurance Law (#24) of 1979 (1995 revision). Companies Law, 1969. ? The Insurance (forms) Regulations (1980) ? Monetary Authority Law 1996 Number of Captives. ? 694 licensed as of 12/31/2004 Capitalization and Solvency Requirements Restricted Class B No statutory Minimum Net Worth Unrestricted Class B ? General Minimum Net Worth : $120,000 Unrestricted Class B ? Long-term Minimum Net Worth : $240,000 Unrestricted Class B ? both Minimum Net Worth : $360,000 All insurers must show sufficient capital to support underwriting. As a general rule, Cayman regulators require a premium to surplus ratio of less than 4 : 1 Premium Taxes There is no premium tax payable Incorporation Fee ? Annual License Fee : $8,333 ? Segregated Portfolio Companies : $300 per cell, maximum $1,500 Local Representation Requirements ? Registered Office ? Appointment of a locally licensed insurance manager, unless the company obtains approval to employ suitable local staff. About SRS SRS provides underwriting, management and wholesale brokerage services in the alternative insurance market. They design, implement, manage and grow captive and ART programs on behalf of corporations, groups and insurance companies. SRS is an approved manager of captive insurance companies in Arizona, Bermuda, Cayman Islands, South Carolina & Vermont. Through a wholly owned subsidiary SRS is also licensed as an insurance broker in Bermuda. For more information on SRS, visit them at www.strategicrisks.com. Contact: info@strategicrisks.com