The Cayman Islands ' A Centre For Global Reinsurance

• Published date: 18 March 2024
• Subject Matter: Insurance, Insurance Laws and Products, Reinsurance
• Law Firm: Cayman Finance
• Author: Jacob MacAdam (Appleby)

Cayman has long been a leading financial centre for both investment funds and captive insurance. However, it is now also flourishing as a dynamic jurisdiction of choice for reinsurance.

In recent years, Cayman's reinsurance industry has experienced double-digit year-on-year growth. In 2023 reinsurers accounted for 11% of the total insurance industry in Cayman and with an ever-hardening global reinsurance market, escalated pricing, increased retention requirements and limited capacity, this upwards growth trajectory appears set to continue.

In this article we consider some of the key reasons why market participants are increasingly choosing Cayman as a jurisdiction of choice for their offshore reinsurance structures.

Solvency II

Cayman reinsurers predominantly reinsure risk that is US-facing with over 90% of the risk covered by the jurisdiction emanating from North America. Like the US, the Cayman has not sought equivalency under the European Union's Solvency II framework (Solvency II). Solvency II imposes a rigid capital ratio framework that forces reinsurers to reserve capital that could otherwise be deployed. As a result of this decision, Cayman is able to offer US and other non-European reinsurance focused entities greater flexibility in respect of the regulatory capital ratios and investment options which frequently results in lower overall operating costs.

A divergence from Solvency II means that prospective licensees are able to engage with the Cayman Islands Monetary Authority (CIMA), which adopts a risk-based approach to regulation, to construct bespoke and appropriate capital models. Cayman's insurance legislation permits reinsurers to develop their own internal regulatory capital models, including capital models using the National Association of Insurance Commissioners (NAIC) risk-based capital guidelines. CIMA's pragmatic and flexible approach enables licensees to structure their capital in an efficient manner and, if desired, align with US regulatory and reporting requirements.

Tax neutrality

Cayman remains committed to its tax neutral status. This allied to the lack of a dual tax regime is a key draw for reinsurers considering establishing an offshore structure. Tax neutrality allows for increased financial flexibility helping reinsurers create bespoke and highly efficient capital models.

NAIC

The Cayman government confirmed in 2023 that it is committed to achieving equivalency with the US's NAIC's standards. Achieving NAIC equivalency as a...