U.S. life and annuity insurance companies have increasingly looked to manage their risk exposure through the reinsurance market, and many companies are choosing to set up entities and affiliates in Cayman. In fact, “over the last few years the Cayman Islands commercial reinsurance industry has experienced double digit growth year on year.[i]” In this blog, we’ll explore four reasons for the trend as well as the role that technology can play in making the most of Cayman’s favorable conditions.
- More Favorable Capital Treatment
Insurers and reinsurers can receive more favorable capital treatment under the Cayman Island Monetary Authority (CIMA) rules versus other domiciles, and life and annuity entities are good candidates to reap the benefits. These entities often have longer-duration liabilities, and as such, can invest in alternative, longer-term assets with potential to generate higher yield, while simultaneously receiving more favorable capital treatment under CIMA rules.
- Flexible or Modified Accounting Standards
In the Cayman market, companies have the unique option to adopt internationally recognized accounting standards, CIMA standards, or a hybrid arrangement. This year, there may also be a potential option for reinsurers that have established themselves in Cayman to seek NAIC equivalency in the US on an entity-by-entity basis, where it might make sense in terms of reduced collateral requirements for specific transactions. Modified and hybrid accounting approaches must be confirmed to be internationally recognized to be accepted by CIMA. For life and annuity reinsurers in particular, the modified arrangements may allow them to benefit from lower capital reserve requirements and improved solvency ratios. This flexibility also extends to capital methodology, creating a tremendous opportunity to improve return on regulatory capital, particularly in the alternative investment space.
- Speed to Market
Setting up a reinsurance affiliate in Cayman is relatively quick and inexpensive, and reinsurers can offer very competitive terms for closing transactions. Depending on which carrier class a reinsurance entity applies for, such as with Class B3, they may not have to have a physical office or staff in Cayman, unlike other jurisdictions. Furthermore, once established, it is also a fairly simple process to change between carrier classes (such as moving up from a Class B3 to a commercial Class D), allowing companies to scale quickly as their business model may require.
- A wealth of local expertise
Just as the number of licensed reinsurance carriers has increased in Cayman, so has the breadth and depth of local on-island expertise. Over the past three to five years, many of the leading insurance asset managers, legal, audit, technology and servicing firms, with long-standing presences in the U.S., U.K. and Bermuda markets, have established local teams of experts on Cayman to provide direct support for reinsurance entity investment operations, accounting, financial and regulatory reporting.
Technology is a Factor for Success
If your firm chooses to domicile in Cayman due to any of the reasons outlined above, the right technology and service partner can help position you for growth and success. To that end, SS&C offers comprehensive solutions to streamline the full insurance investment lifecycle—working directly with your asset managers and custodians—to ensure you have a timely and accurate book of record. We bring specific technology, experience and service expertise to support the complete accounting, operational and reporting requirements of complex, alternative investment portfolios held by life and annuity reinsurers. With SS&C as a partner, Cayman reinsurers can take advantage of the favorable regulatory, accounting, capital and reporting environment while also ensuring they are positioned for maximum operational scale and efficiency as they continue to expand investment activities. To learn more, please contact us.
[i] https://caymanresident.com/business/financial-services/reinsurance, Last Updated Jan 25, 2024.
