Reinsurers Ramp-Up: Growth in the Fund-Sponsored Reinsurance Market

28 February 2013

Reinsurers Ramp-Up: Growth in the Fund-Sponsored Reinsurance Market

Since the establishment of the pioneering hedge fund-sponsored reinsurer, Greenlight Re, in the Cayman Islands in 2004, an increased number of hedge funds and fund managers have sought to put capital to work in the reinsurance market, where the benefits include diversification, reduction in volatility of asset flows, risk adjusted returns and tax benefits to US taxable investors.

An increasing number of such reinsurance vehicles are being formed in the Cayman Islands as it is a key jurisdiction in this area offering many benefits such as:

(a) Leading fund and insurance domicile.  The Cayman Islands is the world's premier hedge and private equity fund jurisdiction and one of the world's leading insurance jurisdictions with an established, first world infrastructure and legal and judicial system.

(b) International standards.  The Cayman Islands is a safe and secure jurisdiction which is consistently ranked as a market leader for its robust compliance regime and regulatory protocols, offering compliance with the FATF Global Standards and an established and strong record of transparency and co-operation with international regulators, such as the OECD and the IMF.

(c) Solvency II.  Unlike other jurisdictions, the Cayman Islands has chosen not to pursue regulatory equivalence with Europe's Solvency II Directive. This has proven to be of particular interest to North American-focussed fund managers, who are not otherwise required to maintain capital in accordance with the Solvency II framework.

(d) Regulation.  The Cayman Islands Government is committed to the continuing development of the insurance and reinsurance industry in the Cayman Islands and legislation streamlining the licensing of reinsurance vehicles has recently been brought into force1. This new legislation provides a clear regulatory framework for the licensing of insurance vehicles generally, including dedicated licences for reinsurers, captive insurers and special purpose insurers.  There are no restrictions on investment strategy for licensed reinsurers.

(e) Security of tenure.  In 2012, the Cayman Islands Government recognised the increased interest in the Cayman Islands as a reinsurance domicile by designating various key management roles in the industry as being eligible for the grant of ten year work permits.  Significantly, permit holders become eligible to apply for permanent residency (and thereafter citizenship) after eight years residence.  Permanent residency is also immediately available to persons of independent means, persons who establish a substantial business presence and for direct investment entrepreneurs.

(f) Quality of life.  The Cayman Islands is an excellent place to live and work, with professionals experiencing a very high standard of living. The HSBC Expat Explorer Survey 2012 reaffirms Cayman's dominant position in various categories and ahead of many other offshore financial centres.  Cayman earned top ranking in overall experience and working environment.

(g) Real estate.  Unlike other jurisdictions where quality office space can be difficult to find, Cayman has a significant choice of grade A office space available at competitive rates. 

As a full service law firm, Maples and Calder is well placed to advise on all legal issues relating to reinsurer establishment from corporate and regulatory, to employment, immigration and real estate matters.

For further information, please speak to your usual Maples and Calder contact or any of the individuals listed above.

1See previous client update dated December 2012.

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