To understand how Cayman’s financial regulatory body CIMA is balancing its supervisory role while supporting industry efforts to broaden the international insurance industry in the Cayman Islands, Captive Insight spoke with Ruwan Jayasekera, Head of CIMA’s Insurance Supervision Division.
Ruwan Jayasekera: One of the key pillars and a precondition for effective insurance supervision is the supervisors’ in-depth knowledge of its licensees and their cross-border transactions. Given Cayman’s position as the world’s second largest captive domicile with approximately 700 international insurers with varying degrees of sophistication, the supervisors’ practical and relevant professional experience is a key precondition to have an effective, robust yet pragmatic insurance supervisory framework. Even though vast majority of the Cayman-based insurers conduct transactions with the insurers and policyholders in the United States of America, Cayman insurers and reinsurers offer protection to policyholders in many countries around the world. Therefore, regulators within the Cayman Islands are also required to continuously keep on top of the global insurance industry and regulatory developments and trends.
Traditionally, the global insurance industry has been slow to change. However, in the last decade or so, innovations in technology and processes have transformed, or beginning to transform, the business functions of the insurance industry.
CAPTIVE INSIGHT: WITH AN ESTABLISHED LEADER, TWO DEPUTIES AND THE ADDITION OF REINSURANCE EXPERTISE WITH THE APPOINTMENT OF PETER FOX, CIMA’S INSURANCE SUPERVISION DIVISION LOOKS STRONGER THAN EVER. HOW IS CIMA PLACED TO MEET THE CHALLENGES OF REGULATING THIS MARKET IN THE MODERN COMPETITIVE ERA?
For example, with the captive insurance concept gaining wider attention and popularity as a flexible, cost-effective risk mitigating tool, as well as a viable solution for many emerging risks that are difficult to insure in the traditional commercial insurance marketplace, many corporates have started to use captives for sophisticated and innovative purposes. Another example is blockchain technology, where it is making inroads into the insurance industry and reshaping almost every aspect of an insurer’s operation.
The Cayman Islands Monetary Authority has been able to attract and retain highly skilled, competent and experienced regulatory staff. Through its international engagements and memberships as well as involvement in international standard setting mechanisms, CIMA is well placed to meet the challenges of regulating a modern and sophisticated insurance industry in the Cayman Islands.
CI: What does this mean practically for license holders and potential license holders?
RJ: The Cayman Islands’ legal and regulatory frameworks encourage and support sophistication and innovation.
This coupled with its regulators’ understanding, familiarity and acceptance of sophistication and innovation are key to existing insurance licensees, potential licensees and service providers in doing business in the Cayman Islands. In recognising the unique skillsets needed to carry out its supervisory responsibilities, CIMA is proud to note that staff in the Insurance Supervision Division bring prior work experience to the insurance industry. For example, CIMA has successfully recruited insurance and reinsurance treaty underwriters, catastrophe modelers, insurance brokers, claims and policy servicing staff etc. This has helped CIMA as a regulator to understand and appreciate commercial aspects of insurers’ operations and apply a risk-based and commercially sensible approach in supervising its licensees. In addition, Cayman has the advantage of having a single regulator for its insurance, banking, funds, securities and corporate services industries, and this arrangement is immensely to the benefit of Cayman’s licence holders and potential licence holders. There is also a high-level of interaction between the regulatory divisions and non-regulatory divisions within CIMA, and as a result, the senior regulatory staff are well versed in all areas of the financial services industry, including insurance.
Captive insurance companies in particular are known as versatile and efficient facilities that can provide endless options to their shareholder corporates. However, such entities may need to operate in a flexible, yet robust business and regulatory environment. The Cayman Islands’ legal and regulatory framework, together with the sound expertise of its regulators, provides this scope of flexibility and robustness proportionate to the size, nature and complexity of its insurance licensees.
CI: What are the current priorities for the Insurance Division?What is keeping you busy?
RJ: CIMA’s Board of Directors formally approved and adopted a set of medium-term strategic priorities to guide CIMA’s work over the next two to three years. As a regulatory division within CIMA, the Insurance Supervision Division’s ensures that its priorities and daily actions are aligned with CIMA’s strategic objectives. Such priorities are determined within the context of CIMA’s existing statutory functions of financial sector regulation and supervision, currency management, international cooperation and the provision of advice to the Government, as well as CIMA’s obligations, as listed in the Monetary Authority Law. Some of the goals which CIMA has currently adopted include: modernising regulation, enhancing supervision, strengthening international cooperation and involvement, and facilitating further development of the Cayman Islands as an international financial services centre. At the insurance divisional level, supervising the licensees to ensure regulatory compliance is an utmost priority as this would be key for the Cayman Islands to remain a fair, safe and stable insurance market for the benefit and protection of policyholders, beneficiaries and claimants. To achieve this goal, CIMA tries to continuously find ways to enhance efficiency and effectiveness of the insurance regulatory framework.
The Cayman Islands’ insurance industry has seen significant growth in recent times, both in terms of new company formations and expansion of existing (re)insurance programs. This means, CIMA receives thousands of applications every year to review and approve. CIMA understands the business demands and time sensitivity of its licensees and has published timeframes for processing applications and requests received. Therefore, another priority of the Insurance Division would be to adhere to these timeframes and be as prompt as possible.
CI: How would you gauge Cayman’s success in attracting reinsurance business which was one of the primary aims of the revamp of the Insurance Law?
RJ: CIMA has seen an increase in open-market reinsurance companies as well as reinsurance subsidiaries of insurance groups establishing in the Cayman Islands predominantly to provide coverage of life and annuity products but also for property and casualty risks. Several global mid-tier reinsurance companies have also recently re-domiciled to the Cayman Islands from established reinsurance jurisdictions and CIMA anticipates that this trend will continue.
CI: What in particular does Peter Fox bring to the department in terms of expertise following his appointment this year?
RJ: Mr. Fox’s position further enhances the existing reinsurance expertise at CIMA. Mr. Fox’s career spans nearly 46 years in the insurance industry. Naming some of his most recent positions held prior to joining CIMA, Mr. Fox served as Senior Manager with KPMG in their UK office from 2008 – 2011.
During his time there, he provided extensive audit and consulting advice to Lloyd’s and London market companies. This included a blend of mergers/acquisitions, Solvency II and asbestos/health hazard/pollution claim advice to clients. He was designated as the principle point of contact for UK originating captive consulting activities. He also served as the lead mentor for newly qualified actuaries and was the national lead in the actuarial graduate recruitment programme.
Additionally, he was elected by KPMG’s Financial Services group to represent views to the UK Board of KPMG. A year later in 2012, Mr. Fox joined American International Group to work as a Global Pricing Actuary where he took on a special project to harmonise worldwide pricing in the enterprise segment of the business. From 2013 – 2017, he also worked with International General Insurance where he held the positions of Group Chief Actuary and Group Chief Officer. Other previous employers include Aon Insurance Brokers, Riverstone Management, the UK Actuarial Profession and Legal & General Assurance Society.
Mr. Fox holds a First Class Honors Bachelor of Science degree in Mathematics from Queen Elizabeth College of London University and is a Fellow of the Institute of Actuaries. Since the completion of his Fellowship exams in 1977, where he passed the Specialist Life Assurance Practice, Mr. Fox has gained extensive experience in pensions and life assurance. Subsequently, he has also concentrated on the property and casualty reinsurance market.
CI: What are CIMA’s priorities in the reinsurance space?
RJ: Whilst CIMA has seen increased activity in open-market reinsurance space in the Cayman Islands, technically speaking, most of Cayman’s international insurers, including captives provide reinsurance to their shareholder policyholders. Therefore, CIMA’s priorities in the reinsurance space capture both “reinsurance-captives” as well as open-market reinsurers. At the international level, CIMA served as a member of the taskforce put in place by the International Association of Insurance Supervisors (“IAIS”) in 2016 to review and revise the Insurance Core Principle 13 (“ICP 13”) on Reinsurance and Other Forms of Risk Transfer. ICP 13 sets out standards for supervisors to follow in assessing the use of reinsurance and other forms of risk transfer by their licensees. The international and cross-border nature of reinsurance transactions and the relative sophistication of parties involved in a reinsurance arrangement require CIMA to liaise with a number of overseas supervisory authorities. International cooperation and coordination has always been a priority for CIMA, and this will continue in the reinsurance space. To date, CIMA has entered into over 50 bilateral agreements and 6 multilateral agreements with regulatory authorities, including the IAIS. In August 2018, CIMA entered into a Memorandum of Understanding with The National Association of Insurance Commissioners (“NAIC”). This agreement offers a formal framework to provide mutual assistance and exchange of information to assist in better understanding and coordinating compliance with applicable laws, regulations, rules and requirements in each jurisdiction. The United States remains the single largest trading partner of the Cayman’s international insurance sector, with approx. 90% of Cayman-based (re)insurers providing coverage to United States risks. As such, a stronger relationship with the NAIC is highly beneficial to the Cayman Islands reinsurance and captive industry in particular.
In addition, CIMA will continue to enhance its regulatory framework to accommodate sophisticated reinsurance operations.
CI: What are the key regulatory issues for captive insurance companies in the Cayman Islands now and what is CIMA doing in this regard?
RJ: Captives are growing in sophistication and whilst this is good news for the captive industry globally including in the Cayman Islands, this would require captives to have in place resources and expertise proportionate to their sophistication and regulatory compliance requirements. CIMA has issued, and will continue to issue, comprehensive guidance to the industry by way of Rules and Statement of Guidance to assist Cayman’s captive insurers to identify areas that they should focus on to remain compliant with the local regulatory requirements. In addition, CIMA encourages boards and management of captives to meet with them, face-to-face, every 18-24 months to discuss their captives programs.
CI: What is special about CIMA’s approach to insurance regulation?
RJ: The Cayman Islands has remained a leading captive jurisdiction for nearly five decades and whilst there are many reasons for this success, we believe that CIMA’s regulatory philosophy to remain responsive, pragmatic and accessible to our licensees has undoubtedly contributed to Cayman’s overall success over the years. CIMA welcomes and encourages our licensees to meet with us regularly, especially during visits to Cayman or when CIMA representatives attend overseas conferences. CIMA holds around 350 meetings with our insurance licensees every year, which includes 40-50 meetings during the Cayman Captive Forum week. CIMA regularly engages with the Cayman Islands government, and collaborate with other stakeholders, including industry bodies such as the Insurance Managers Association of Cayman (“IMAC”), to identify areas where greater efficiency, flexibility and innovation are necessary. CIMA also works with various industry stakeholders including a large number of international regulatory bodies to maintain a flexible business environment that complies with strict international standards, and stay ahead of the game. The continuous evolution of technology has already started to change the way in which people do business. As the nature of business changes, so will the nature of risk. Technology is challenging traditional ways of thinking and doing insurance business. Technologies such as digital platforms, smart contracts, artificial intelligence, telematics, drones, and blockchain have already started to transform the insurance industry, including its products and services and their delivery. Technological innovation will demand flexible, efficient and secure regulatory platforms and jurisdictions with rigid laws and regulations may struggle to accommodate fast changing technologies and innovation. Cayman’s regulatory framework is modern, flexible and robust, and this has allowed the jurisdiction to grow its industry both during soft and hard markets. As such, we are confident that the Cayman Islands will continue its dominance as a leading insurance center for many years to come.
CI: Cayman insurance managers say CIMA’s Insurance Supervision Division is recognised for its flexibility and willingness to discuss issues with potential license holders to help them achieve their goals. How does this work in practice?
RJ: Accessibility to CIMA’s supervisory staff is the key. Not only does CIMA remain accessible to its licensees, individually or as an industry, the Authority encourages regular meetings with boards and senior management of its licensees to discuss general updates and future plans. CIMA also meets with the Insurance Managers Association of Cayman (IMAC) every quarter to discuss industry matters that are of importance. Finally, CIMA takes its responsibilities very seriously, especially as it relates to processing applications and any associated requests. As such, the Authority works diligently to ensure that we adhere to these timeframes and be as prompt as possible.
CI: What does CIMA do to ensure Cayman remains a serious option for ILS issuers in a competitive market and how does CIMA approach this sector?
CIMA’s Class ‘C’ insurer category captures entities that provide reinsurance through the issuance of insurance-linked securities such as Cat Bonds, sidecars, collateralised reinsurance or similar instruments. Among all ILS structures in the Cayman Islands, Cat Bonds dominate the market. CIMA understands the sophisticated and time-sensitivity nature of the ILS structures, and has introduced a fast-track approval process for Cat Bonds where applications are processed within 5-10 business days. This is a testament to CIMA’s ongoing efforts to accommodate sophistication and innovation within its regulatory philosophy of using a risk-based and proportionate approach to ensure that our licensees are appropriately supervised. CIMA has also introduced procedures and issued guidance on audit-waiver requests for Class ‘C’ insurers. In addition, CIMA representatives attend the SIFMA’s Insurance and Risk-Linked Securities (IRLS) Conference every year to meet with the representatives of Cayman’s existing and potential Class ‘C’ insurers.