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Introduction
This chapter of the Encyclopaedia of Prudential Solvency focuses on the prudential solvency regime of the Cayman Islands, a prominent (re)insurance hub. The Cayman Islands initially rose to prominence in the insurance industry in the late 1970s with the creation of an internationally recognised legal framework. Since then, the territory has grown into a global centre for international insurance business. It is the second largest jurisdiction for captives, and is the number one destination for healthcare captives.1 In addition to the jurisdiction’s long-held reputation as a financial centre for captive insurance and investment funds, it has increasingly gained a foothold in the (re)insurance market. Based on recent regulatory filings in the United States, it is estimated that the Cayman Islands captures approximately 10% of the offshore life reinsurance market emanating out of the United States.
We thank our friends in the Cayman Islands at Appleby and Conyers for their review and input into this chapter.
1. The Legal Framework
The Cayman Islands Monetary Authority (CIMA) is the regulatory body governing the (re)insurance industry in the Cayman Islands. CIMA derives its regulatory powers from the Monetary Authority Act 2020 (as revised) and the Insurance Act 2010 (as revised) (the Act). The regulatory powers granted to CIMA include licensing, ongoing supervision, and enforcement. CIMA’s role in governing the (re)insurance industry forms part of its general responsibility for the overall supervision and regulation of the financial services industry in the Cayman Islands. CIMA has the authority to issue: (i) supplementary rules, guidance and policies which are binding on regulated entities in the jurisdiction; and (ii) procedures and policies for the regulation of its own internal frameworks and procedures.
The Act defines “insurance business” as: “the business of accepting risks by effecting or carrying out contracts of insurance, whether directly or indirectly, and includes running-off business including the settlement of claims.”2 The Act also defines “reinsurance business” as the business of accepting risks by effecting or carrying one or more contracts of reinsurance, whether directly or indirectly, and includes running-off business including the settlement of claims.3 Only persons who hold a valid licence issued by CIMA may carry out insurance business in or from within the Cayman Islands. There are also particular requirements which cover the licencing of insurance agents, insurance brokers and insurance managers.
CIMA is a founding member of the International Association of Insurance Supervisors (IAIS). It is party to the IAIS Multilateral Memorandum of Understanding, which is a framework that establishes a formal basis for global cooperation and information exchange amongst insurance supervisors. CIMA has been party to the IAIS Multilateral Memorandum of Understanding since June 2011.4 Further, CIMA regulates the (re)insurance sector in the Cayman Islands in accordance with the Core Principles of Insurance Supervision issued by IAIS.
As a British Overseas Territory, the Cayman Islands has a political and legal system rooted in English common law, enhanced by a modern statutory framework tailored to meet current commercial needs. The territory is not an independent country, with ultimate power remaining with the British monarch in the UK and his appointed representative, the Governor, who is responsible for ensuring security and good governance within the Cayman Islands. With over 165 years of representative government, the Cayman Islands’ legal hierarchy begins with the local Summary Court and culminates with the highest appeals being heard by the Judicial Committee of the Privy Council in London. This structure helps to ensure a highly stable and robust legal environment conducive to establishing an insurance company.
2. The Prudential Regime
Types of Insurer
As set out more fully below, there are several kinds of insurer which are regulated in the Cayman Islands, including:
Domestic Insurers offering insurance to residents of the Cayman Islands.
Captive Insurers offering non-domestic insurance where net written premiums originate from the insurer’s related business.
Special Purpose Vehicles.
Reinsurers offering reinsurance for domestic or foreign risks.
Classes of Insurer
In the Cayman Islands, (re)insurers are categorised into different classes depending on the nature and scope of their insurance business. In accordance with its regulatory role, CIMA oversees these classifications, assisting in the effective supervision of (re)insurers. In summary, the different classes of insurers are as follows:
Class A. These are licences that allow for the carrying on of domestic insurance business by a local or external insurer, or limited reinsurance business as approved by CIMA. Class A insurers primarily serve the domestic market, offering a range of insurance products such as life, health, property, and casualty insurance to residents and businesses in the Cayman Islands. Class A insurers must adhere to specific capital and solvency requirements set by CIMA to ensure they can meet their policyholder obligations.
Class B. This class of licence is for the carrying on of insurance business other than domestic business and includes captive insurers, which are companies established to insure the risks of their parent company or related entities. This class of licensee can also include certain types of reinsurers. Class B licences are further divided into three subcategories based on the percentage of net premiums written from related business:
- Class B(i). Insurers that write at least 95% of net premiums from the risks of their parent company or related entities. This sub-category is designed for pure captives.
- Class B(ii). Insurers that write more than 50% but less than 95% of net premiums from related business.
- Class B(iii). Insurers that write 50% or less of net premiums from related business, allowing them to write a significant portion of unrelated business. Reinsurers, often using an insurance manager, are also able to obtain a licence within this sub-category which generally facilitates affiliated or third party reinsurance.
Class C. This class of licence is often issued for the carrying on of insurance business involving the provision of reinsurance arrangements where the insurer’s insurance obligations are limited in recourse to, and collateralised by, its funding sources or the proceeds of such funding sources, which may include the issuance of bonds or other instruments, contracts for differences or other funding mechanisms approved by CIMA. Class C licences are also often used for special purpose vehicles in insurance-linked securities (ILS) transactions, such as catastrophe bonds.
Class D. This licence category is usually reserved for the largest reinsurers and such other business as may be approved for any individual licence by CIMA. A Class D insurer will typically need to have a local presence in the Cayman Islands and a Minimum Capital Requirement (MCR) of $50 million. As outlined below, the Prescribed Capital Requirement (PCR) for a Class D insurer may well be more than the MCR. Class D insurers can operate on a global scale, offering reinsurance solutions across various lines of business. They play a crucial role in risk management by helping primary insurers manage their risk exposure and capital requirements.
The classification system and CIMA’s approach of considering each application on its merits, allows for a tailored regulatory approach, recognising the diverse nature of insurance businesses operating in the Cayman Islands. It also facilitates the growth of the insurance sector by providing a flexible framework that accommodates both traditional insurance companies and innovative risk management solutions like captives and ILS vehicles.
Overall, the Cayman Islands’ classification of insurers reflects its status as a leading international financial centre, offering a robust and dynamic regulatory environment that supports the needs of both domestic and international insurance markets.
Solvency Capital Requirements – Class A insurers
There are insurance capital requirements depending on the exact nature of an individual insurer. In the case of local Class A insurers, “available capital” is defined as being the capital and surplus which is made up of: issued share capital; additional paid in capital (including share premiums); retained earnings; investment reserves; capital reserves; currency translation reserves; and other equity reserves, in each case less any applicable liabilities or deductions. The available capital of a local Class A insurer must at all times exceed the MCR which is the greater of:
(a) $300,000; and
(b) the square root of the sum of the square of: (i) capital required for subsidiaries; (ii) capital for assets; (iii) margins for policy liabilities; margin for catastrophes; and the margin for foreign exchange risk.
In addition to the MCR, there is also a PCR which is 125% of the MCR for local class A insurers. The available capital shall at all times exceed the MCR.
For external Class A insurers, “available capital” is limited to the total assets located in the Cayman Islands, less total liabilities and any other deductions applicable relating to the Cayman risks.5 The MCR for an external insurer is the greater of (i) $1 million and (ii) its policy liabilities.6 The PCR of external Class A insurers is 150% of the MCR. Unlike local insurers, Class A external insurers must also at all times place and maintain in trust with a person approved by CIMA, in a segregated account with a Cayman Islands bank (holding an “A” licence) assets in an amount at least equal to the PCR.7
Solvency Capital Requirements – Class B, C and D insurers
In addition to an insurer having its own licence class, insurers can be further distinguished based on the type of insurance activities they conduct. There are designations assigned to each insurer which, in turn, will affect that insurer’s MCR and PCR, as more particularly set out below.
General Insurer. This type of insurer provides non-life insurance products. These can include property, casualty, motor, liability, and other forms of insurance that do not involve life or health coverage. General insurers focus on covering risks associated with liabilities and physical assets.
Long-Term Insurer. This category is dedicated to life insurance and other long-term insurance products. It includes life assurance, annuities, and health insurance. Long-term insurers focus on policies that provide benefits over an extended period, usually related to the life or health of the insured.
Composite Insurer. A composite insurer is authorised to conduct both general and long-term insurance business. This means they can offer a wide range of insurance products, covering both life and non-life risks. However, composite insurers must maintain separate accounts for general and long-term business to ensure clear financial management and regulatory compliance.
MCRs for Class B, C and D insurers are set out slightly differently, but in essence as per the table below.
| Class | General | Long-term | Composite |
|---|---|---|---|
| B(i) | $100,000 | $200,000 | $300,000 |
| B(ii) | $150,000 | $300,000 | $450,000 |
| B(iii) | $200,000 | $400,000 | $600,000 |
| C | $500 | $500 | $500 |
| D | $50,000,000 | $50,000,000 | $50,000,000 |
The PCR for Class B, C and D insurers is the total risk-based capital that an insurer must maintain in order to operate in a safe and sound manner.8 The following table sets forth the requirements for each class of insurer.
| Class | Prescribed Capital Requirement |
|---|---|
| B(i) |
|
| B(ii) |
|
| B(iii) |
|
| C |
|
| D |
|
Note that in respect of the PCR of Class D Insurers only, if an insurer has:
-
Reinsurance recoveries related to assumed reserves:
- a reduction to the Creserve will be allowed up to 100% of any reinsurance recoveries if such recoveries are secured by letters of credit;
- else a reduction of 95% for collateral approved by CIMA;
- else a reduction of 90% if the recovery is from highly rated reinsurers;
- else 50% for all other forms of reinsurance.9
-
Ceded unearned premium reserves, a reduction to the Creinsurance will be allowed:
- up to 100% of any ceded unearned premium reserves if such recoveries are secured by letters of credit;
- else a reduction of 95% for collateral approved by CIMA;
- else a reduction of 90% if the recovery is from highly rated reinsurers;
- else 50% for all other forms of reinsurance.10
-
Ceded catastrophe risk, a reduction to the Ccatastrophe will be allowed:
- up to 100% of any reinsurance recoveries if such recoveries are secured by letters of credit;
- else a reduction of 95% for collateral approved by CIMA;
- else a reduction of 90% if the recovery is from highly rated reinsurers;
- else 50% for all other forms of reinsurance.11
CIMA has additional powers in respect of the PCR and definition of “available assets” for certain classes of insurer. For example, irrespective of the class of insurer, CIMA has the power to set an alternative PCR where it deems it appropriate to do so. Likewise, in respect of Class B, C and D insurers, it may exclude from the relevant calculations any assets it thinks are not suitable.12
There are additional requirements for Class B, C and D insurers which do not apply to Class A insurers (whether local or external). Such insurers are required to keep their solvency margin such that it is at least equal to the PCR. Where a particular insurer’s capital falls below the prescribed PCR but is still greater than the MCR, an insurer must present a plan to CIMA for remedying such a difference. Where the capital falls below the MCR, CIMA may consider regulatory action.13
General Requirements
All licenced insurers are required to prepare financial statements in accordance with generally accepted accounting principles and any auditor appointed to prepare financial statements must be pre-approved by CIMA.14 Additionally, insurers must have adequate systems of internal controls to ensure that monitoring of investment activity is appropriate, having regard to the size and complexity of the insurer and the nature of its investment activities, together with ensuring that the assets are managed in accordance with the insurer’s overall investment policy.15
Under the Act, certain insurers and reinsurers16 are required to submit an annual actuarial valuation of their assets and liabilities, certified by a CIMA-approved actuary. This valuation must also undergo peer review by an independent Peer Reviewing Actuary (PRA). The appointed actuary is responsible for preparing the actuarial valuation report, adhering to professional standards and CIMA’s guidelines. The PRA’s role is to independently assess this report, ensuring compliance with acceptable actuarial practises, and to communicate their findings to CIMA. Both actuaries must be recognised by CIMA, which requires them to be fellows in good standing with recognised actuarial bodies and to possess relevant experience. The insurer’s board of directors holds oversight responsibilities, including approving actuary appointments and ensuring the integrity of data provided for actuarial assessments. These regulatory measures aim to uphold the quality and reliability of actuarial evaluations within the jurisdiction.
In respect of Class B and Class C insurers, unless a permanent place of business is maintained (and is approved by CIMA), the insurer is required to appoint an insurance manager in the Cayman Islands (the Manager). The Manager themselves must be licenced in accordance with the Act. At the Manager’s place of business, the insurer should keep and maintain full and proper records sufficient to enable:
- An explanation of the insurer’s transactions.
- Disclosure, with reasonable accuracy, of the state of affairs at any given time of the affairs of the insurer.
- The insurer to prepare its annual financial statements.
All licensed insurers and reinsurers engaging in outward reinsurance or retrocession arrangements must have a documented reinsurance strategy within their business plans, tailored to their specific risk profiles and operational complexities. This strategy must receive prior approval from CIMA, with any material changes also requiring approval. The CIMA Rule and Statement of Guidance on Reinsurance Arrangements emphasises a risk-based approach, requiring insurers to assess the impact of risk transfer, counterparty credit risk, and to maintain appropriate internal controls. By formalizing these requirements, CIMA aims to enhance the prudential oversight of reinsurance practices, aligning with international standards such as the Insurance Core Principle 13 of the IAIS. This development underscores the jurisdiction’s commitment to maintaining robust and transparent insurance regulatory frameworks.
Each licence holder is required to pay the prescribed licence application fee or annual renewal fee (as appropriate) on or before 15 January each year.
3. Regulatory Capital Tiers
Unlike many prudential solvency regimes across the globe, the regime in the Cayman Islands does not prescribe specific tiers to distinguish the ways in which an insurer may deploy assets to satisfy part of its overall solvency capital requirement (save in the case of Class D insurers as more particularly described above).
4. Group Supervision
CIMA sets out its approach to group (or consolidated) supervision in a November 2023 regulatory policy update (the Regulatory Policy). CIMA defines consolidated supervision as: “a group-wide comprehensive approach which includes the assessment and evaluation of an entire group, while taking into account the group’s reputation and financial soundness, as well as the overall risks which may affect the group regardless of whether the risk is identified within the regulated entity, or another entity within the group.”17 CIMA identifies such risks including:
Reputational risk: loss of confidence in the insurer if another group member finds itself in difficulty.
Contagion risk: where the risks undertaken by another group member negatively impact the regulated entity or the entire group.
Intragroup risk: arising in the context of intragroup transactions which may not be entirely transparent, especially where such transactions involve transfers between regulated and unregulated entities.
Conflicts of interest.
Supervisory arbitrage: arising where members of a group conduct activities in a variety of jurisdictions with varying degrees of regulatory oversight.
Gearing: the risk of the same capital being used as a buffer against risk in two (or more) legal entities within the group.
CIMA will not issue a licence under the Act if the potential applicant’s group structure hinders effective group supervision. Further, CIMA’s approach to group supervision is dependent on whether the applicant would result in CIMA acting as the “home” supervisor or the “host” supervisor.
Home Supervision
CIMA will act as the home supervisor where the group in which the regulated entity sits is based in the Cayman Islands and is not subject to group supervision by a regulator in another jurisdiction. However, certain situations may arise where CIMA is not the group’s home supervisor but may be the individual home supervisor of a significant regulated entity within a wider group.18
There are several factors which will be taken into consideration as to whether CIMA considers itself the appropriate body to act as the group supervisor:19
- Is the group based in the Cayman Islands?
- Does CIMA have the statutory authority to supervise the head of the group?
- Is the group’s head office in the Cayman Islands? If not:
- Where are the group’s main business activities conducted?
- Where are the group’s main business decisions taken?
- What are the group’s main risks?
- Where does the group have its largest balance sheet total?
If the conclusion of CIMA’s assessment is that it considers itself to be the most appropriate regulatory body, then CIMA will supervise the relevant regulated entity/group on a consolidated basis, including via an assessment of the risks and capital adequacy of the group considering the input of individual supervisors from other jurisdictions as appropriate.20
Host Supervision
In contrast to home supervision, “host” supervision is considered to occur when CIMA exercises supervisory oversight over a regulated entity which is a branch, subsidiary or affiliate of an entity in a different regulated jurisdiction. CIMA will undertake analysis to confirm whether the regulated entity’s home supervisor conducts group supervision effectively and in accordance with standards acceptable to CIMA.21
In conducting its analysis of whether consolidated supervision is in a manner consistent with CIMA’s expectations, CIMA takes into account the following internationally recognised supervisory principles, such as:22
- The Basel Committee on Banking Supervision and the Basel Core Principles.
- The IAIS Insurance Core Principles.
- The Core Principles of the International Organization of Securities Commissions.
Any other international standard considered appropriate by CIMA from time to time.
Whether the home supervisor receives consolidated financial and prudential information about the group’s global operations and has the capability to prevent organisation structures that undermine consolidated supervision.
Similarly, CIMA will take into account a wide range of factors in determining whether host supervision is suitable, including:23
- Does the home supervisor have any objection to the establishment of a branch, subsidiary or affiliate in the Cayman Islands?
- Does the home supervisor have any regulatory concerns with respect to the parent undertaking or its management?
- Would the branch be included in the group supervision regime of the home supervisor?
- Does the home authority have any restrictions on information sharing in place with respect to CIMA?
- Are there generally any other factors which could hinder effective group supervision of the applicant?
If CIMA decides host supervision is appropriate, it may still request the regulated entity to submit financial statements of the parent undertaking together with any information CIMA considers necessary that it may need to gather from the parent undertaking’s home supervisor.24 Likewise, CIMA may also require the provision of additional qualitative information including information relating to the operational and internal structures of the group. The intention is to uncover any inherent risks, internal controls and risk management procedures and to understand the details supporting the fitness and propriety of the shareholders, directors and senior managers.25
5. Investment Rules
CIMA has published the “Rule – Investment Activities of Insurers” and the “Statement of Guidance – Investment Activities of Insurers.” The difference, as the names would suggest, is that the rule is designated as a requirement issued to licensees on a subject matter that CIMA considers essential for the prudential supervision of an insurer, creating binding obligations whereby a breach of such rule may lead to the imposition of a fine or other regulatory action. In contrast, the statement of guidance is intended to assist insurers in complying with the rule and other legislation and contains guidance on how insurers should operate.
An insurer’s investment of assets must observe the following four key principles:
Security. Assets should be sufficiently secure for the portfolio as a whole. The security of an investment is linked to the protection of its value and can be affected by credit and market risks.26
Liquidity. Assets should generate sufficient cash flows such that they can meet policyholder claims as and when they fall due. An insurer’s ability to maintain liquidity should include consideration as to: (i) unexpectedly large claims; (ii) an event resulting in significant claim volume; (iii) changes in market conditions; and (iv) mitigation considerations with respect to derivatives.27
Diversification. Asset classes should be wide-ranging, enabling insurers to mitigate the effects of adverse financial events. CIMA expects that such diversification will be proportionate to the insurer’s size, risk profile and nature of the business undertaken by the insurer.28
Risk Management. Insurers should be alive to the factors (both internal and external) that could impact the investment risks to which an insurer can be exposed, including risk tolerance levels, objectives and the general economic climate. Insurers should have appropriate systems in place to monitor and take steps to mitigate any such key identified risks.29
In accordance with the general guidance with respect to asset investment as described above, the accompanying rules laid down by CIMA are consequentially descriptive and not prescriptive in nature. CIMA provides a framework in which it expects insurers to operate which can be condensed into four key thematic areas:
General Principles. Insurers must invest their assets in a manner that allows them to properly identify, measure, monitor, manage, control and report risks, including market, credit, liquidity, concentration, strategic and operational risks. Investments should be secure, available for policyholder payments and comply with sanction orders. Assets must be diversified unless deemed low risk by CIMA, considering the nature, scale and complexity of the business.30
Nature of Liabilities. Insurers are required to invest in a way that aligns with the nature and duration of their liabilities. This includes matching cash flows from investments with liability cash flows, ensuring investment guarantees and embedded options are suitable, and managing conflicts of interest. Insurers must also ensure close matching of assets and liabilities for certain policies and maintain investments tailored to the needs of the insurance entity, not influenced by group objectives.31
Management of Investment Risks. Insurers should only invest in assets with risks they can assess, monitor, and mitigate. They must establish a risk management framework, ensure asset segregation where required and maintain transparency in investments. Insurers must have the necessary knowledge and skills to manage investment risks and retain ultimate responsibility for investments, even when using external advisors.32
Investment Policy. Insurers must establish an investment policy appropriate to their business’s nature, scale and complexity, which requires approval from CIMA. The policy should specify the nature and extent of investment activities, compliance with rules, evaluation standards, risk appetite, investment selection criteria, asset allocation limits, monitoring and control processes, and details of investment managers. An investment committee (IC) should oversee the policy and investment activities, ensuring governance and transparency.33
Fundamental to the overarching strategy (and as noted above) is CIMA’s requirement that an insurer has an investment policy commensurate with the nature, size and complexity of the insurer’s business. The investment policy itself should be able to provide for the relevant due diligence processes that will be used for each investment such that the investment process can be monitored and evaluated from start to finish.34 To implement and devise the investment policy, an insurer must have an investment committee composed of at least one board member with the requisite expertise on financial and investment matters (though noting the IC requirement does not apply to Class B(i) and Class B(ii) insurers). The duties of the IC, as approved by the board, include implementing and overseeing adequate risk management systems and controls for the Insurer’s investments, which involves:35
- Ensuring proper segregation of execution, monitoring and performance measurement functions.
- Clearly delineating authority limits for those dealing with investments.
- Establishing performance monitoring procedures.
- Maintaining continuous risk monitoring procedures.
- Ensuring timely management reporting.
- Handling investments by qualified and trained individuals.
- Ensuring compliance with internal audit procedures.
The IC should additionally emphasise that the use of complex investments should not jeopardize the value preservation of the Insurer’s assets or solvency.36
In conjunction with the IC-designated controls, the insurer should more generally have adequate internal control systems to ensure that assets in which the insurer has invested in accordance with the investment policy are properly managed. CIMA suggests certain internal controls on investment activities could include: concentration limits, valuation and recording of investments in accordance with generally accepted accounting principles, and general reporting on investments.37
6. Cayman Islands – Sunny Skies or Storm Clouds?
The majority of the business written by both the captive industry and the reinsurance industry in the Cayman Islands has its origins in North America. Reinsurers in the Cayman Islands primarily reinsure risks sourced from the United States, and more than 90% of the risks covered by Cayman reinsurers relate to exposures originating from North America.38 The Cayman Islands has not sought European Union Solvency II equivalence (the only jurisdictions outside of the EU which are deemed Solvency II equivalent are Switzerland and Bermuda), nor UK Solvency II equivalence. Solvency II ordinarily imposes strict, standard capital requirements on insurers with the aim of preserving capital to meet potential liabilities. Notwithstanding that there is no intention by the Cayman Islands to align with the Solvency II standard, the Cayman Islands government and CIMA are committed to achieving equivalence with the National Association of Insurance Commissioners’ (NAIC) regulatory frameworks. Achieving such a regulatory standard would enhance the reputation of the Cayman Islands as an international (re)insurance hub.
The Cayman Islands’ regulatory system allows for individualised structuring, providing the ability to design a bespoke capital, investment and resourcing model for the individual insurer in the context of the risks being assumed, coupled with appropriate reporting and transparent frameworks. It is arguable that European-style Solvency II rules are not optimised for US life insurance business. Therefore the regulatory approach in the Cayman Islands is tailored to be more aligned with US expectations and practices, resulting in lower regulatory friction and a greater ease of doing business for US sponsors and reinsurers in the Cayman Islands. Likewise, the Cayman Islands government has confirmed that it does not intend to implement the OECD global minimum corporation tax rate39, unlike, Bermuda, which has done so since January 2025.40
While there is no doubt that the Cayman Islands serve as a key reinsurance destination, there are barriers which are precluding it from being a distinct reinsurance market in its own right. Namely, there is not a great physical presence, i.e., insurers with staff in the Cayman Islands themselves. Such insurers would be the Class D insurers licenced by CIMA, and as of the end of 2024, there were just nine licensed Class D insurers, although there are an increasing number of self-managed or partially self-managed Class B(iii) reinsurers with premises and personnel in the Cayman Islands.
Over recent times, the regime in the Cayman Islands has been the subject of much discussion within the insurance industry. Whilst many recognise the benefits that come with the bespoke nature of the Cayman Islands regulatory regime, there have been concerns from some quarters that there is a lack of strict capital requirements for insurers in comparison to Solvency II style jurisdictions. The Cayman Islands seek to require (re)insurers to be well-capitalised, well-supervised and well-regulated, and for business emanating from North America, that often must accord with the NAIC regulatory framework, with which both onshore cedants and others are familiar. It could be argued that the regulatory system overseen by CIMA provides the ability to design a bespoke capital, investment and resourcing model which is right for the individual insurer in the context of the risks being assumed, coupled with appropriate reporting and transparent frameworks. The Cayman Islands approach to regulation is thought to allow for an efficient optimisation of capital and asset deployment.
Naturally, it is for each insurer to assess the suitability of each jurisdiction for themselves within the context of their own business and the risks they underwrite. Nonetheless, it is a helpful reminder that, while the Cayman Islands and Bermuda may share similarities as offshore island jurisdictions, their prudential regulatory regimes are very distinct from each other.
7. Conclusion
In summary, the Cayman Islands is recognised as a significant global centre for international insurance business, particularly known for captive insurance and healthcare captives, with approximately 10% of the offshore life reinsurance market from the United States. The regulatory framework overseen by CIMA is descriptive in the standards it has set in contrast to the highly prescriptive Solvency II and Solvency UK regimes, which, depending on the point of view of a particular insurer (and taking into consideration the nature and home of the risks it insures), could be a beneficial factor in determining whether the Cayman Islands represents a favourable jurisdiction for that particular insurer.
_______________
1 Cayman Islands Monetary Authority.
2 Section 2, The Insurance Act 2010 (as amended).
3 Section 3(1)(b), ibid.
4 International Association of Insurance Supervisors.
5 Reg 2, The Insurance (Capital and Solvency) (Class A Insurers) Regulations, 2012.
6 Reg 5(2), ibid.
7 Reg 5(1), ibid.
8 Reg 2, ibid.
9 Schedule 1, ibid.
10 Id.
11 Id.
12 Reg 8, ibid.
13 Reg 9, ibid.
14 Section 9, The Insurance Act 2010 (as amended).
15 Para 6.7, Rule – Investment Activities of Insurers, February 2022.
16 Unless otherwise exempt, under the Insurance Act, this requirement applies to Class A, Class D and those Class B (re)insurers writing long-term business. See CIMA’s Rule and Statement of Guidance – Actuarial Valuations (Rule and SoG), introduced in November 2019, which provides guidance on CIMA’s expectations for the preparation of both the appointed actuary and PRA’s reports.
17 Para 1.2, Regulatory Policy – Consolidated Supervision, CIMA, November 2023.
18 Para 6.17, ibid.
19 Para 6.18, ibid.
20 Para 6.19, ibid.
21 Para 6.11, ibid.
22 Para 6.12, ibid.
23 Para 6.13, ibid.
24 Para 6.13, ibid.
25 Para 6.16, ibid.
26 Paras 6.1-6.3, Statement of Guidance – Investment Activities of Insurers, February 2022.
27 Paras 6.4-6.5, ibid.
28 Paras 6.6-6.10, ibid.
29 Paras 6.11-6.12, ibid.
30 Para 6.1, Rule – Investment Activities of Insurers, February 2022.
31 Para 6.2, ibid.
32 Para 6.3, ibid.
33 Para 6.4, ibid.
34 Para 9, ibid.
35 Para 8, ibid.
36 Para 8, ibid.
37 Para 10, ibid.
38 Cayman Finance, “The Cayman Islands – a centre for global reinsurance,” 11 March 2024.
39 Torkington, Simon. “What does the OECD global minimum tax mean for global cooperation?” World Economic Forum, 2 February 2024.
40 “Bermuda enacts a corporate income tax, requiring businesses to begin preparing for compliance,” PwC, 17 January 2024.
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