Captives buck trend
The most positive movements for 2009 were in the captive insurance sector, where, for the first time since 2002, there was an increase in the number of licences issued for captive insurance companies. The 40 new captive formations were in a range of industries, including transport, financial services, manufacturing and healthcare. The new licences represent a 25 percent increase over the 32 licenses issued in 2008.
“This reversal from the downward trending of the previous eight years is significant,” said Mr. Gordon Rowell, Head of Insurance Supervision. “The contraction of credit globally reduced the ability to fund both capital and premiums of captives, while the worldwide recession reduced the demand for, and the supply of, insurance. The fact that, despite this, the Cayman Islands had a marked increase in captive formations underscores the desirability of this jurisdiction in the captive markets. This is based on the expertise of our service providers, Cayman’s legal and regulatory framework for captives, and the accessibility and professionalism of CIMA as regulator, among other factors.”
A total of 37 licences were cancelled during the year, a number of them as a result of a periodic review and cleaning out of licences that had surrendered in prior years but not removed from the system. This resulted in 780 active captive licences at 31 December, a net increase of three over the 2008 total. The 780 captives had total assets of US$44.7 billion. Total premiums amounted to $7.5 billion. Medical malpractice liability was the most popular category of business, with 269 licensees, representing roughly 35 percent of all captives. This was followed by workers compensation (162 licensees; 21 percent) and property (115 licensees; 15 percent).
Mr. Rowell anticipates that in 2010 there will be renewed interest in captives as an alternative risk management mechanism as the signs are that the commercial insurance market will contract. He explained: “Poor investment returns combined with the squeeze between low rates and limited available surplus is placing pressure on midsized and smaller insurers, particularly in the U.S. commercial market. This will cause the currently soft market -- artificially low market premiums -- to harden in the third quarter --increase rates. The only factor presently preventing a severe increase in U.S. insurance rates is that unemployment and insolvencies are high, and insurers are competing to maintain their market share over a smaller pool of risks. However, in order to compete, insurers are using up surplus reserves and absorbing ever increasing losses. Some of them will not be able to survive. We expect that the market will contract and that will increase the demand for captives. Cayman is in a good position to take advantage of that interest.”
- from The Navigator January 2010 issue