Introduction
The Cayman Islands has established itself as a prominent global centre for international insurance business, particularly in captive insurance and healthcare captives. The jurisdiction’s regulatory framework, overseen by the Cayman Islands Monetary Authority (CIMA), provides a robust and flexible environment for insurers.
Regulatory Framework
CIMA derives its regulatory powers from the Monetary Authority Act 2020 and the Insurance Act 2010. The Insurance Act defines ‘insurance business’ and ‘reinsurance business’, and requires that only licensed entities conduct insurance activities in or from the Cayman Islands. CIMA is responsible for licensing, ongoing supervision, and enforcement.
Classification of Insurers
CIMA categorizes insurers into different classes based on their insurance business nature and scope:
- Class A: Domestic insurance business
- Class B: Insurance business other than domestic, including captives and certain reinsurers
- Class C: Special purpose vehicles for insurance-linked securities
- Class D: Large reinsurers with significant global operations
Capital Requirements
The Cayman Islands has a risk-based capital framework with different requirements for various insurer classes:
Minimum Capital Requirements (MCR)
- Class A local insurers: Greater of $300,000 or a formula-based calculation
- Class A external insurers: Greater of $1 million or policy liabilities
- Class B, C, and D: Varying amounts based on insurer classification
Prescribed Capital Requirements (PCR)
- Class A local: 125% of MCR
- Class A external: 150% of MCR
- Class B, C, and D: Risk-based calculations specific to each class
Investment Rules
CIMA has established rules and guidance for insurer investments, emphasizing four key principles:
- Security
- Liquidity
- Diversification
- Risk Management
Insurers must establish an investment policy approved by CIMA, outlining their investment strategy and risk management processes.
Group Supervision
CIMA’s approach to group supervision involves assessing the entire group’s financial soundness and risks. The authority may act as either the ‘home’ supervisor for Cayman-based groups or ‘host’ supervisor for foreign groups with Cayman subsidiaries.
Comparison with Other Regimes
The Cayman Islands has chosen not to adopt the EU’s Solvency II framework but is working towards equivalence with the NAIC regulatory framework. This approach allows for tailored capital and investment models for individual insurers, potentially offering greater flexibility for US-sourced business.
Conclusion
The Cayman Islands’ prudential solvency regime offers a balanced approach between regulatory oversight and flexibility for insurers. Its commitment to achieving NAIC equivalence and maintaining a robust regulatory framework positions it as a significant player in the global reinsurance market.
