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Phillip Giles, CEBS
Phillip Giles, CEBS

The Cayman Islands is the top destination for captive insurance companies transferring healthcare risks. Over 750 captive insurance companies are domiciled in the Cayman Islands, writing over $12 billion in annual premiums. Healthcare captives, especially those covering medical malpractice and workers compensation, make up a large portion of Cayman's captive industry. The Cayman Islands was one of the earliest adopters of captive insurance and has developed significant expertise in insuring healthcare risks over several decades, maintaining its position as the leading jurisdiction for healthcare captives.

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Top of the class The Cayman Islands is the second largest domicile for captives globally and the number one destination for captives transferring risk from the healthcare sector. But why is Cayman so well equipped to cater for this sectorand can its growth continue? Cayman Captive explores. 22 cayman captive 2015
cayman captive 2015 23 Anna Jurkovska / Shutterstock.com Healthcare captives According to a report by Aon, as at June 30, 2014, Caymans 764 licensed captive insurance companies wrote premiums of $12.3 billion and held total assets of $54.9 billion impressive numbers by any measure. But the story behind those statistics is an even more fascinating one. Some classes of business emerge as the clear front-runners when it comes to the amount of premium allocated against eachalso giving an indication of the areas in which Cayman is regarded as the domicile of choice. The Aon report shows the split as follows: medical malpractice 34 percent, workers compensation 22 percent, property 12 percent, general liability 10 percent, professional liability 9 percent. Other lines including accident & health, auto, credit life, deferred variable annuities, life, marine & aviation, product liability, and surety bonds make up the remaining 13 percent between them. The Cayman Islands clearly continues to be the leading jurisdiction for healthcare captives with formations transferring this type of risk representing the majority of all captives domiciled on Cayman. Further statistics from the Cayman Islands Monetary Authority (CIMA) back this up. As of September 30, 2014, figures from CIMA show that medical malpractice liability continues to be the largest primary line of business, with 257 companies (see Table 1). Workers compensation is the second largest line of business with 158 companies. Practitioners operating in this sector back up these statistics with anecdotal evidence of its superiority. Cayman represents a solid historical foundation built on financial strength and flexibility with a track record of being a domicile of choice for healthcare organisations, says Susan Pateras, senior vice president and healthcare practice leader at Iron-Starr. Giselle Lugones, executive vice president of Aon Risk Services, agrees, adding several specific reasons that she believes Cayman remains ahead of the game. Cayman is the easiest venue in which to transact business for healthcare. Fees are competitive and the ability to utilise various types of structures is key, Lugones says. Deep roots Indeed, the very roots and traditions of the captive sector on Cayman started in the healthcare space. According to the Insurance Managers Association of Cayman (IMAC), Caymans captive industry began extensively in 1976 when the Harvard Medical School needed to domicile a medical malpractice captive for its teaching hospitals. The Cayman Islands emerged as the domicile of choice as it enacted legislation that allowed it to write coverage for the hospitals as well as individual practitioner malpractice insurance. Caymans credibility as an offshore jurisdiction was immediately amplified. The US insurance market in the 1980s brought its own challenges. Big corporations, major cities and even non-profits suddenly found insurance to be too expensive or unavailable altogether, and more captives started to emerge in response to these dynamics. With expertise in the design and management of captives on the rise, their use began to spread globally throughout the private and public sectors. This paved the way for the development of the Cayman Islands as a leading domicile of choice for captivesand healthcare captives in particular. Cayman has become the preferred domicile for healthcare risks, says Philip Giles, vice president of sales and marketing at QBE North America. As one of the oldest domiciles, Cayman has a long-established domicile infrastructure both in terms of the stability of its regulatory environment and a mature abundance of necessary service providers such as insurance and asset managers, attorneys, auditors, and the like. Having a consistent and stable regulatory environment, especially one as familiar with the nuances specific to the healthcare industry, is critical in helping to promote an increased level of stability for the captives domiciled there. Healthcare captives are formed primarily to help manage medical professional liability risk. A large proportion of Cayman-domiciled captives are sponsored by healthcare entities that use their captives to help reduce the costs of healthcare to patients. Through this expertise and the important regulatory partnership provided by the CIMA, a constructive business environment has been formed, which has increased the number of healthcare captives that domicile in Cayman. Healthcare risksparticularly large hospitals, healthcare systems and physician groupshave been among the earliest adopters of establishing captives as a strategic risk financing mechanism, Giles explains. Since Cayman could provide the regulatory stability, requisite service infrastructure, and a favourable geographic proximity to the US, it became a natural domicile for many healthcare risks. Over time, more healthcare-related risks selected Cayman as their domicile of choice due to the familiarity regulators had with these classes of business something I would call a snowball effect of growth. CAYMAN REPRESENTS A SOLID HISTORICAL FOUNDATION BUILT ON FINANCIAL STRENGTH AND FLEXIBILITY WITH A TRACK RECORD OF BEING A DOMICILE OF CHOICE FOR HEALTHCARE ORGANISATIONS. SUSAN PATERAS
Solving Obamacare Even more growth is forecast as the healthcare industry in the US adjusts to the ramifications of the most profound and wide-ranging changes in its history: the Affordable Care Act, otherwise known as Obamacare. With the Cayman Islands already at the forefront of healthcare-related captives, many industry professionals believe its role will likely expand due to increasing costs and complexity associated with healthcare coverage. The medical sides always been very strong, and thats going to be enhanced somewhat, says Conor Jennings, managing director at insurance manager Captiva. Jennings describes the recent inception of a new medical facility in Cayman called Health City, which is looking to attract people from the US to receive specialist treatment at a lower cost than would be available in the US. Many investors and some extremely bright doctors have set up this facility with massive government backing in order to encourage and attract medical tourism to Cayman, Jennings explains. 24 cayman captive 2014 Jennings believes that due to the sheer numbers of doctors and medical practitioners travelling to Cayman, an overlap could be on the horizon. Perhaps some of these doctors could become directors of local insurance companies, he says. Were not just a sleepy desert island with palm treesthere are medical experts and lots of insurance-focused individuals, which frankly is a big advantage over some other jurisdictions. That will enhance Cayman as a centre for medical expertise in captives as well as procedurals. The dynamic could effectively represent the continuation of something Giles says has already occurred over the years. He describes a snowball effect whereby, over time, more healthcare risks have selected Cayman as their domicile due to the familiarity regulators had with these classes of business. He says that Cayman now also has an abundance of captives writing medical stop loss coverage for employee healthcare coverage. Again, many of these (stop loss) captives are hospital and healthcare captives that have expanded their existing Cayman captive to include medical stop loss as a way to expand/enhance the use and efficiency of their existing captive.
cayman captive 2014 25 Table 1: Insurance business classes of Cayman captives participants Primary class of business Total licensees Written premium (US$ billion) Total assets Hospital & medmal liability 257 $3.1 $12.8 Workers compensation 158 $2.1 $7.4 Professional & general liability 151 $0.9 $5.3 Property 93 $1.1 $9.8 Life & annuity 45 $4.3 $51.5 Automobile physical damage & liability 16 $0.2 $0.4 Accident & health 11 $0.1 $0.5 Marine & aviation 10 $0.0 $0.4 Total 741 $11.8 $88.1 Source: Cayman Islands Monetary Authority Adding medical stop loss to an existing captive is usually fairly easy via an expansion or amendment to the original captive business plan and ensuring that appropriate surplus has been established to accommodate the new line of business. He notes that there has been an increasing level of competition among domiciles both onshore and offshore. But Cayman can still come out on top. With more domicile options, comes significant variance in distinguishing qualitative standards between different domiciles. Some of the newer domiciles (especially onshore) have experienced growing pains of inconsistent regulatory management, however Cayman has maintained an enviable track record of friendly (pro-business), stabile and consistent regulatory environment, Giles says. l

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Top of The Class

  • 1. Top of the class The Cayman Islands is the second largest domicile for captives globally and the number one destination for captives transferring risk from the healthcare sector. But why is Cayman so well equipped to cater for this sectorand can its growth continue? Cayman Captive explores. 22 cayman captive 2015
  • 2. cayman captive 2015 23 Anna Jurkovska / Shutterstock.com Healthcare captives According to a report by Aon, as at June 30, 2014, Caymans 764 licensed captive insurance companies wrote premiums of $12.3 billion and held total assets of $54.9 billion impressive numbers by any measure. But the story behind those statistics is an even more fascinating one. Some classes of business emerge as the clear front-runners when it comes to the amount of premium allocated against eachalso giving an indication of the areas in which Cayman is regarded as the domicile of choice. The Aon report shows the split as follows: medical malpractice 34 percent, workers compensation 22 percent, property 12 percent, general liability 10 percent, professional liability 9 percent. Other lines including accident & health, auto, credit life, deferred variable annuities, life, marine & aviation, product liability, and surety bonds make up the remaining 13 percent between them. The Cayman Islands clearly continues to be the leading jurisdiction for healthcare captives with formations transferring this type of risk representing the majority of all captives domiciled on Cayman. Further statistics from the Cayman Islands Monetary Authority (CIMA) back this up. As of September 30, 2014, figures from CIMA show that medical malpractice liability continues to be the largest primary line of business, with 257 companies (see Table 1). Workers compensation is the second largest line of business with 158 companies. Practitioners operating in this sector back up these statistics with anecdotal evidence of its superiority. Cayman represents a solid historical foundation built on financial strength and flexibility with a track record of being a domicile of choice for healthcare organisations, says Susan Pateras, senior vice president and healthcare practice leader at Iron-Starr. Giselle Lugones, executive vice president of Aon Risk Services, agrees, adding several specific reasons that she believes Cayman remains ahead of the game. Cayman is the easiest venue in which to transact business for healthcare. Fees are competitive and the ability to utilise various types of structures is key, Lugones says. Deep roots Indeed, the very roots and traditions of the captive sector on Cayman started in the healthcare space. According to the Insurance Managers Association of Cayman (IMAC), Caymans captive industry began extensively in 1976 when the Harvard Medical School needed to domicile a medical malpractice captive for its teaching hospitals. The Cayman Islands emerged as the domicile of choice as it enacted legislation that allowed it to write coverage for the hospitals as well as individual practitioner malpractice insurance. Caymans credibility as an offshore jurisdiction was immediately amplified. The US insurance market in the 1980s brought its own challenges. Big corporations, major cities and even non-profits suddenly found insurance to be too expensive or unavailable altogether, and more captives started to emerge in response to these dynamics. With expertise in the design and management of captives on the rise, their use began to spread globally throughout the private and public sectors. This paved the way for the development of the Cayman Islands as a leading domicile of choice for captivesand healthcare captives in particular. Cayman has become the preferred domicile for healthcare risks, says Philip Giles, vice president of sales and marketing at QBE North America. As one of the oldest domiciles, Cayman has a long-established domicile infrastructure both in terms of the stability of its regulatory environment and a mature abundance of necessary service providers such as insurance and asset managers, attorneys, auditors, and the like. Having a consistent and stable regulatory environment, especially one as familiar with the nuances specific to the healthcare industry, is critical in helping to promote an increased level of stability for the captives domiciled there. Healthcare captives are formed primarily to help manage medical professional liability risk. A large proportion of Cayman-domiciled captives are sponsored by healthcare entities that use their captives to help reduce the costs of healthcare to patients. Through this expertise and the important regulatory partnership provided by the CIMA, a constructive business environment has been formed, which has increased the number of healthcare captives that domicile in Cayman. Healthcare risksparticularly large hospitals, healthcare systems and physician groupshave been among the earliest adopters of establishing captives as a strategic risk financing mechanism, Giles explains. Since Cayman could provide the regulatory stability, requisite service infrastructure, and a favourable geographic proximity to the US, it became a natural domicile for many healthcare risks. Over time, more healthcare-related risks selected Cayman as their domicile of choice due to the familiarity regulators had with these classes of business something I would call a snowball effect of growth. CAYMAN REPRESENTS A SOLID HISTORICAL FOUNDATION BUILT ON FINANCIAL STRENGTH AND FLEXIBILITY WITH A TRACK RECORD OF BEING A DOMICILE OF CHOICE FOR HEALTHCARE ORGANISATIONS. SUSAN PATERAS
  • 3. Solving Obamacare Even more growth is forecast as the healthcare industry in the US adjusts to the ramifications of the most profound and wide-ranging changes in its history: the Affordable Care Act, otherwise known as Obamacare. With the Cayman Islands already at the forefront of healthcare-related captives, many industry professionals believe its role will likely expand due to increasing costs and complexity associated with healthcare coverage. The medical sides always been very strong, and thats going to be enhanced somewhat, says Conor Jennings, managing director at insurance manager Captiva. Jennings describes the recent inception of a new medical facility in Cayman called Health City, which is looking to attract people from the US to receive specialist treatment at a lower cost than would be available in the US. Many investors and some extremely bright doctors have set up this facility with massive government backing in order to encourage and attract medical tourism to Cayman, Jennings explains. 24 cayman captive 2014 Jennings believes that due to the sheer numbers of doctors and medical practitioners travelling to Cayman, an overlap could be on the horizon. Perhaps some of these doctors could become directors of local insurance companies, he says. Were not just a sleepy desert island with palm treesthere are medical experts and lots of insurance-focused individuals, which frankly is a big advantage over some other jurisdictions. That will enhance Cayman as a centre for medical expertise in captives as well as procedurals. The dynamic could effectively represent the continuation of something Giles says has already occurred over the years. He describes a snowball effect whereby, over time, more healthcare risks have selected Cayman as their domicile due to the familiarity regulators had with these classes of business. He says that Cayman now also has an abundance of captives writing medical stop loss coverage for employee healthcare coverage. Again, many of these (stop loss) captives are hospital and healthcare captives that have expanded their existing Cayman captive to include medical stop loss as a way to expand/enhance the use and efficiency of their existing captive.
  • 4. cayman captive 2014 25 Table 1: Insurance business classes of Cayman captives participants Primary class of business Total licensees Written premium (US$ billion) Total assets Hospital & medmal liability 257 $3.1 $12.8 Workers compensation 158 $2.1 $7.4 Professional & general liability 151 $0.9 $5.3 Property 93 $1.1 $9.8 Life & annuity 45 $4.3 $51.5 Automobile physical damage & liability 16 $0.2 $0.4 Accident & health 11 $0.1 $0.5 Marine & aviation 10 $0.0 $0.4 Total 741 $11.8 $88.1 Source: Cayman Islands Monetary Authority Adding medical stop loss to an existing captive is usually fairly easy via an expansion or amendment to the original captive business plan and ensuring that appropriate surplus has been established to accommodate the new line of business. He notes that there has been an increasing level of competition among domiciles both onshore and offshore. But Cayman can still come out on top. With more domicile options, comes significant variance in distinguishing qualitative standards between different domiciles. Some of the newer domiciles (especially onshore) have experienced growing pains of inconsistent regulatory management, however Cayman has maintained an enviable track record of friendly (pro-business), stabile and consistent regulatory environment, Giles says. l