The Continuing Compelling Case for Cayman Captives

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Lark Member Kerr, Russell and Weber, PLC www.kerr-russell.

1 2016 Cayman Captive Forum The Continuing Compelling Case for Cayman Captives Eric I. Lark Member Kerr, Russell and Weber, PLC Paul Scrivener Partner Solomon Harris Travis Lantis Lantis Enterprises 1

2 Introduction A. Sitnal Insurance (SPC) Ltd. 1. History in Bermuda 2. The move to Cayman 3. The captive experience in Cayman B. Why Does Cayman Remain a Compelling Choice Over Other Jurisdictions? 1. Track record and experience 2. Business and political environment 3. Legal regime 4. Regulatory framework 2

3 Introduction (cont.) B. Why Does Cayman Remain a Compelling Choice Over Other Jurisdictions? (cont.) 4. Infrastructure 5. Specific USP s 6. Downsides? 7. Don t take our word for it! C. Conclusion and Q&A 3

4 A. Sitnal Insurance (SPC) Ltd. 1. History in Bermuda Lantis Enterprises history and operations Travis role in Lantis, captives Insurance pricing and lack of availability Lantis began seeking alternatives in mid s Choosing Bermuda the factors 4

5 A. Sitnal Insurance (SPC) Ltd. (cont.) 1. History in Bermuda (cont.) MRM and segregated accounts by contract The early experience in Bermuda The next phase creating its own segregated cell company early 1990 s Cell legislation 3 cells 3 lines of insurance Continued to look for a better answer 5

6 A. Sitnal Insurance (SPC) Ltd. (cont.) 2. The move to Cayman Started looking at Cayman in Downsides to Bermuda:» Not a lot, but a few complaints:» Everything in Bermuda is 3 attorneys» Cost of doing business was high» Not very user friendly» Everything went through attorneys little or no direct contact with regulators It was more about the upsides seen in Cayman 6

7 A. Sitnal Insurance (SPC) Ltd. (cont.) 2. The move to Cayman (cont.) Perceived upsides to Cayman: President of Lantis liked the business friendly atmosphere in Cayman so did Travis The captive manager was pro-active Stricter vetting process viewed as a good thing Fairly new SPC legislation enacted (1998) Able to work more with the captive manager and less attorney involvement» Could directly approach regulators Infrastructure was still solid 7

8 A. Sitnal Insurance (SPC) Ltd. (cont.) 3. The Captive Experience in Cayman Set up as an SPC from Day Ran workers compensation through 1 cell for many years Loss portfolio transfer of general liability in 2012 into a second cell and wind down Bermuda entity Started placing 3 rd party business in 2012 in a 3 rd cell 8

9 A. Sitnal Insurance (SPC) Ltd. (cont.) 3. The Captive Experience in Cayman (cont.) Sold operations of core business in 2013 Still own most of the buildings Workers compensation is winding down GL + property running through the captive 3 rd party business in 3 rd cell is thriving» Worldwide security company» Workers compensation and general liability Very selective about 3 rd party business to bring in. Travis remains a board member and officer of the captive 9

10 B. Why does Cayman Remain a Compelling Choice Over Other Jurisdictions? 1. Track Record and Experience Mature domicile - captive industry in existence since the early 1970 s and captive legislation since 1979 Over 700 captives now 2 nd largest captive domicile globally Accessible, knowledgeable regulators Stability and international standing of the regulator Healthcare leader Continuing to grow 33 new licensees to 30 September 2016 CIMA, IAIS, MMOU, OGIS and OECD 10

11 2. Business and Political Environment Major financial centre with can do approach to business Cayman recognizes the importance of financial/insurance business to its economy, the island Stable and predictable business environment Stable politically UK model and UK Overseas Territory Public/private sector collaboration IMAC, NAIC Captives versus commercial insurance/reinsurance Resources committed Political changes 11

12 3. Regulatory Framework Legislation tailored for captive insurance industry Attempts to stay ahead of curve without stifling opportunity Proportionate, risk-based approach to regulation but less intrusive than US domiciles Less prescriptive regulation than US domiciles offering the opportunity for more tailored ARM solutions Minimum capital requirements typically lower than US domiciles Recent legislative initiatives on internal controls - Risk management framework - Corporate governance framework 12

13 4. Legal Regime Based on English common law and UK legislation Efficient and respected court system Compare to Bermuda, U.S. State Domiciles 5. Infrastructure Numerous, highly experienced captive managers Strong and knowledgeable service provider support tax and audit firms, attorneys, banks, outside directors Compare to Bermuda, U.S. domiciles 13

14 6. Specific USP s Innovation/Creativity (e.g. cell companies, PICs, redomestication) a leader rather than a follower Ability to write third party business Regulatory pragmatism with investment of surplus Flexible approach to regulatory capital with cell companies No tax leakage at the Cayman level For a tax exempt parent, Cayman is the default choice Provides an opportunity to structure the captive as a NCFC 14

15 6. Specific USP s (cont.) No premium taxes Fixed base domicile costs (not %) are advantageous for larger captives No requirement for a locally based director No requirement to hold board meetings in Cayman No requirement to produce statutory accounts Role of local attorneys can be more limited compared to Bermuda, U.S. domiciles 15

16 7. Downsides? a. Offshore stigma and perceptions b. For some lines of business a US domicile is, for regulatory reasons, the only option (e.g. employee benefit risk and TRIA coverage) c. Higher licensing fees than most US domiciles but generally counterbalanced by absence of premium taxes d. Inability to consolidate tax losses among related companies e. Possibly increased travel time and cost 16

17 8. Don t just take our word for it! As one of the current Co-Presidents of Raffles Insurance Ltd., the largest heterogeneous captive insurance company in the world, I can attest to the incredibly effective, efficient, professional and friendly support we have received in the Cayman Islands over almost 30 years. Beyond the tangible substantial financial rewards we have realized, including significant reductions in our annual insurance premiums, we have witnessed the culture of our company evolve to a truly safety first orientation, in all aspects of our business. A very important part of the success has come from the great regulatory support, ongoing education, and expert counsel from the varied support components that comprise the Cayman Islands insurance industry. Mort F. Zifferer, Jr., Chairman/CEO, New Standard Corporation A member of Raffles Insurance Ltd. Source: IMAC and KPMG 17

18 Among the most important considerations arising during the planning stages for our captive was choosing a domicile. We chose the Cayman Islands because of the strong committed regulatory environment staffed by qualified and experienced professionals and leaders. The regulators are very accessible to the captive managers, insurance company principals and directors. The Cayman Islands continues to develop strong working relationships between owners, managers and regulators, all supported by a world class association that has evolved with IMAC. Added together the Cayman Islands represents a most welcome environment for captives. James Caldwell, CEO, Caring Communities Source: IMAC and KPMG 18

19 Investors Trust Assurance has been operating in the Cayman Islands since We originally went to the Cayman Islands because of the sophistication of the legal and regulatory environment; the Segregated Portfolio Company legislation is second to none. Additionally, the Cayman Islands has a comprehensive complement of banking, accounting and legal expertise that is critical for an offshore financial services entity such as ours. More importantly, the Cayman Islands has an extremely educated and knowledgeable base of professionals to work with throughout the financial community. John Zelaya, CEO, Investors Trust Assurance SPC Source: IMAC and KPMG 19

20 For Catholic Health East, there are several reasons we believe it is beneficial to have our captive domiciled in Cayman. The flexibility and receptiveness of the regulators is particularly crucial as we plan to address unprecedented changes in our industry. We also find the financial and political stability of the domicile supportive to the hundreds of captive companies domiciled there. Finally, the breadth of the expertise of our partners in the auditing, captive management, banking and legal communities certainly permits comprehensive and sustainable operational effectiveness for our company. Ted Schlert, CRO and Jenny Barnett, CFO, Catholic Health East Source: IMAC and KPMG 20

21 C. Conclusion and Q&A Thank you. 21

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CIMA s Role and Functions

Cayman Islands Monetary Authority ( CIMA ) CIMA s Role and Functions Presentation to IMAC on 19 April 2016 A brief history of CIMA and its legal basis: Formed on 1 January 1997, by amalgamation of the