Cayman captive

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2010 issue

Certain business models have proved unreliable in the past 18 months. Banking is the prime example. The debate rages on as to whether banks should be allowed to grow indefinitely; bankers’ pay has become the subject of conversation in pubs and saloons; and left-leaning governments in the northern hemisphere have nationalised their banking systems by stealth.

Anti-cyclical in nature, insurance has largely avoided the financial storm. A discouraging word has not been heard against captive insurance since the global financial crisis began or, for that matter, since the 1960s when the modern captive model began to be used. Few, if any, captives have failed as a result of bad lending practices or any of the basic errors made by the private and public sectors in their shared march to the brink of a global depression.

Demand for captive companies has remained constant in Cayman in the past two years. The reasons are much as they have always been: a stable and pleasant jurisdiction supports the formation and continuing management of a proven corporate model. Suitably run, captive insurance companies survive regardless of external conditions. They are a part of the global financial system, but only subject to systemic problems when something goes wrong at the sharp end.

Captives might begin to fail if the world’s major governments were to bankrupt themselves, but in such circumstances, captive owners would have other concerns on their mind. In fact, many of the governments of developed countries have indeed shot themselves and their people in the economic foot, yet Cayman’s captive sector (and the world’s) has ploughed serenely forward, quietly fulfilling its mission.

Strength is measured in adversity. Captives have shown time and again in their almost 50-year existence that the very attributes—caution, prudence, common sense—that make captive insurance, and insurance in general, so uninteresting to most people are the very cornerstones on which longevity is built.

Like other well-managed jurisdictions, Cayman has felt the heat of its larger trading partners desperately looking to shore up national economic systems that have been operated without a thought for the future.

Having avoided the dangers of systemic risk, the offshore community is now the target of a concerted effort to make it pay for the indulgence and mismanagement of the larger economies. Any attempt to make Cayman fit that broken model, thus threatening the captive sector, would do more damage than good.

View the 2010 Issue Here