cayman islands, cayman captive, captive insight


Interview with:

Linda Jones

Tom Jones
Partner, McDermott Will & Emery LLP

William Cassetta
Partner, Honigman Miller Schwartz

Regardless of what we might say about ourselves as a jurisdiction, it is what Cayman’s captive clients think that really counts. Captive Insight spoke with three people who have been doing business in the Cayman Islands for many years and sit on the Insurance Managers Association of Cayman’s (IMAC) ‘Friends of Cayman’ board – a group of long term clients that meet at the annual Cayman Captive Forum to discuss the state of the industry and provide valuable feedback.

What would you say are the attributes to making you wish to continue doing business in Cayman?

Tom Jones: The two key enduring attributes of Cayman are confidence and trust. Due to the highly professional and seasoned captive service providers on the Island (often generally referred to as “infrastructure”), US advisers and consultants can recommend Cayman to existing and prospective clients as the preferred domicile. I’m confident my clients will be treated in a responsive, timely, courteous and informed manner.

Linda Jones: History of stability in understanding healthcare risks, ease of doing business, less regulatory challenges, ability to include third party business.

William Cassetta: Cayman provides our clients an outstanding platform from which to operate captives that can react quickly to changing risk financing needs. The regulatory environment remains supportive and provides the flexibility that enables the captives to be successful. My work is concentrated in the healthcare industry, and because of the substantial healthcare captive business in Cayman, it has been and continues to be the domicile of choice for the majority of my clients.

Where do you see Cayman in the next five years?

Tom Jones: Despite all the tax haven rhetoric, I see Cayman in roughly the same global financial position as now. The world of business requires a reputable, transparent jurisdiction where friction costs are low.

Linda Jones: From the healthcare perspective, as health systems and hospitals continue to consolidate, there may be fewer, but larger captives. They’ll continue to grow in complexity. Even though many US States are introducing captive legislation, it has not been compelling to redomicile, and I believe most healthcare captives will still be domiciled in Cayman.

William Cassetta: I expect that Cayman will continue to be a leading captive insurance domicile, despite increasing competition throughout the world. By sticking to the basics that have been successful, being selective about the business that it licenses, and continuing to take a risk-based approach to regulation, the Cayman captive insurance industry should remain strong for a long time. Blogs and opinion pieces continue to speak of increasing regulation being responsible for stagnating the industry.

What can Cayman be doing to remain both compliant and competitive?

Tom Jones: Exactly what Cayman has been doing to date – being proactive on compliance and transparency. Cayman cannot meaningfully impact regulation elsewhere, but it can continue to balance global “best practices” cooperation with maintaining a responsible regulatory framework internally that’s not overly burdensome.

Linda Jones: I believe the Risk Management Framework was a good step forward, and not burdensome. Continue stability and not become over-regulated, such as increasing capital requirements.

William Cassetta: As mentioned above, Cayman’s approach to regulation that is based largely on the nature of the business being undertaken is a sensible approach. “One size fits all” is not ideal, because it results in over-regulation of many companies for the protection of the insureds of a few. Certainly, early identification and prompt intervention with troubled companies is essential, and the recent changes in the Insurance Law which impose regulatory reporting duties on auditors, for example, demonstrate that Cayman is trying to find new ways to identify potentially troubled companies sooner.

What are the ramifications of the Patient Protection and Affordable Care Act and what new coverage do you envision to be placed into a captive to cover new areas of risk?

Tom Jones: Starting next year, PPACA will have a profound effect on US healthcare providers which will reverberate on their risk funding/mitigation mechanisms. I foresee much larger (and perhaps fewer) Cayman healthcare captives as mergers, consolidations and accountable care organisation structures continue to proliferate. The next frontier stimulated by PPACA will be expansion of captive lines of coverage from today’s professional liability to “capitated” patient care outcome and efficiency reimbursement variability risks.

Linda Jones: We may see the insuring of ACO risks in captives, but much more research is required. I believe privacy and IT risk will increase with ACO’s, and more are considering incorporating it into the captive. Finally, I would expect to see more health benefit products to be included. More are also considering Stop Loss, as a part of their Population Health Management efforts.

William Cassetta: The next few years will be very interesting for the healthcare captive industry as hospitals and other providers adapt to the Affordable Care Act. Captives will be challenged to help their parent companies be more efficient, and doing so will involve much more than the traditional medical malpractice, general liability and workers compensation lines of business. Developments of “clinically integrated networks” will result in new business relationships among providers that are not commonly owned, and there will be opportunities to explore insurance coverage arrangements for these new business partners. Medical information will be exchanged electronically, and privacy breach issues will need to be addressed through creative risk financing. And just as captives have been instrumental in controlling medical professional liability costs for healthcare providers through very effective risk mitigation programs, captives will be challenged to find ways to mitigate economic risk associated with furnishing population health management services. It will be exciting.

What should be new target areas to facilitate new captives, considering many existing ones will likely be consolidated?

Tom Jones: Focusing on the US market, in addition to the ACO risks above, stop-loss coverage for self-insured health plans especially group captives aggregating exposures of numerous small to medium size employers.

Linda Jones: Programs that include stop loss or ACO risks as a result of PPACA.

William Cassetta: It is hard to guess where to look for the next great captive insurance opportunity. These new opportunities often emerge because of developments within an industry that might have little or nothing to do with insurance. The best advice I can give is that everyone in the captive insurance industry needs to remain vigilant for new opportunities, be willing to take on new challenges and try to apply some of the principles that have worked for us in
the past.

Looking at group captives, what are the emerging trends in initiating new group member-owned captives?

Tom Jones: In addition to what I said earlier about areas of opportunity, group captives reinsuring other US employee benefits risks and perhaps group captives designed to handle Texas and Oklahoma workers’ compensation system “opt-out” businesses.

Linda Jones: With consolidation in healthcare, more members are merging and thus, the membership of group captives is shrinking, and could possibly go into runoff. This may also apply to single parent captives, too.

William Cassetta: I have no significant involvement with group captives.