Aug 2024
Arguably the most notable takeaways from the [Re]Connect conference were the updates on the positive progress the Cayman Islands has made in its quest toward (hopefully) making a formal application to secure Qualified Jurisdiction (QJ) status with the NAIC. This is unquestionably an exciting prospect and would be a massive milestone event for our local industry. Whilst the public announcements have generated confidence in CIMA’s progression as a reinsurance jurisdiction and keeps the jurisdiction on the “front foot” in terms of regulatory evolution, there is much speculation within the industry as to changes QJ status might bring, both positive and potentially negative.
Who’s in the Club already?
Bermuda, France, Germany, Ireland, Japan, Switzerland and the United Kingdom are the current roster of jurisdictions that have secured QJ status.
Exalted company? Unquestionably.
A challenge to secure, implement and maintain QJ status? You bet.
A natural next step in the evolution of the Cayman’s (re)insurance industry? Without a doubt!
If the Glove Fits…
The Cayman Islands has a significant and decades long (re)insurance industry currently boasting in excess of 700 insurer licensees. Similar to the nexus other sectors of our financial services industry share with the US, our insurance industry predominantly services the US market with 90% of all risks underwritten having their situs in North America. It should come as no surprise therefore to hear that the Cayman Islands has long considered the possibility of securing QJ status, that many a gap analysis has been tendered and completed and there’s been no shortage over the years of lively debate locally on the pros and cons of QJ status and, indeed, if access to this much revered club was even a possibility.
In Conyers’ view, it appears to us that a confluence of factors has focused the discussion and has led to CIMA and the Government’s preference to aim big, work with all relevant stakeholders and make changes if/where necessary in an attempt to get a seat at the QJ table. Motivating factors surely include: the exponential growth of the Cayman reinsurance market; which has lead in many cases for requests from licensees to CIMA to pursue QJ status; the increasing interaction by CIMA with US State insurance departments on cross-border transactions, at the NAIC meetings and leading to many bilateral MOUs means there’s more and growing familiarity among the family of regulators; increasing focus on offshore domiciles by the NAIC (particularly in the life and annuity space) highlights areas of focus and pursuing QJ status would align with the Cayman Islands Government and CIMA’s on-going goal to meet ever evolving international best practices and standards. It’s also not lost on anyone locally that although a lofty goal the credibility dividend for the jurisdiction in securing QJ status would be material, not to mention the continuing trend of reinsurers establishing and locating personnel in Cayman is resulting in an old fashioned financial dividend to the local economy.
We believe Deputy Premier Mr André Ebanks summed up the current position well at the [Re]Connect conference in April. He presented delegates with a history of the development of financial services in the Cayman Islands, highlighting that it is a world leader in many financial services sectors including investment funds and structured finance. Building on a decades long insurance industry coupled with the on-going convergence of the reinsurance and investment fund sector, Cayman facilitates a “perfect marriage” of these sectors and, in many respects, this represents the final piece of the puzzle for Cayman in terms of servicing the most sophisticated sectors of the global financial services industry.
What would QJ Status mean for Cayman Carriers?
The NAIC is the US standard-setting and regulatory support organisation of the chief insurance regulators of the 50 states, the District of Columbia and five US territories. Achieving QJ status with the NAIC would enable a certain sub-set of Cayman reinsurer licensees to become “Certified Reinsurers”. Certified Reinsurers would be permitted to post less than 100% collateral but still enable an authorised insurer (cedant) to qualify for full credit for reinsurance recoverables with respect to reinsurance contracts entered into or renewed on or after the date the reinsurer becomes certified. The anticipated result of QJ status for Cayman would therefore make Cayman more attractive as a base for an international reinsurance/retro platform, cedants and US regulators would have more comfort and familiarity with the carriers, and off of this, in theory, would serve to drive further business to the Island.
What’s Conyers’ take on all of this?
Larger and more sophisticated life and annuity players and some P&C players entering the Cayman Islands market in recent years has invigorated the reinsurance market and highlighted the benefits of our legal and regulatory regime to a broader audience. As more groups establish Cayman based platforms, it’s reasonable to assume the legal and regulatory environment will proportionately evolve and transition from a regulatory perspective to adequately supervise and regulate larger and more sophisticated carriers entering the local market. As such, in principle, we very much support the initiative and applaud CIMA and the Cayman Islands Government for their attempts to stay on the “front foot” in terms of developing the Cayman reinsurance product.
What about the Golden Goose?
A significant topic of debate over many years has been how Cayman might thread the needle in terms of potentially harnessing the possibilities of securing QJ status without alienating or somehow adversely impacting a deep-seated captive insurance industry that has been loyal and supporting Cayman for close to fifty years. This is unquestionably a concern and one we share at Conyers. We do however note that, in our experience and given our discussions to date, we are confident this is an area that Government and CIMA are extremely mindful of and that great care and caution is being taken to hopefully add the possibilities of QJ status to the menu of options already available to stakeholders in the Cayman market without burdening or adversely impacting those currently domiciled here who are indifferent or have some scepticism regarding the initiative.
Stepping Stone
Cayman is familiar with being under the microscope internationally and has a strong track record of implementing regulatory changes in a manner which is robust and satisfactory to external stakeholders without impacting the pro-business nature of our legislation. The possibilities are significant if CIMA and the Government can successfully secure QJ status for the jurisdiction. Achieving this milestone recognition will bolster our attractiveness and reputation and serve as a stepping stone for an exciting new chapter for the local (re)insurance industry. As more developments materialise the Conyers team will be sure to keep you updated.