Cayman Islands Financial Services

A 93%-increase in captive insurance company formations has been reported by the Cayman Islands Monetary Authority (CIMA) during the 1st 9 months of 2011, as compared to the same period in 2010.

CIMA published statistics revealing that a total of 29 captive insurance companies set up operations in the Cayman Islands during 2011, which is an increase from 14 in the 1st 3 quarters of 2010. This growth reflects the continued resilience of captive insurance sector in the Cayman Islands.

Total premiums breached records, which amounted to USD 9.6 billion as at September 30, a 12%-increase on that recorded at the end of 2010. Total assets have grown only marginally since the beginning of the year, to USD 58.3 billion.

According to CIMA’s Managing Director, Cindy Scotland, “This 93% increase in captive formations and close to USD 10 billion in premiums are indicators of the health of our captive insurance industry, despite the generally soft international insurance market conditions. In all of 2010 there were 25 new captives formed, so for our 2011 numbers to already be at 29, and with new applications pending, we anticipate this calendar year to reflect significant growth in new captives.”

It was noted by the statistics that the Cayman Islands has remained the leading jurisdiction for health care captives. As at September 2011, health care was the primary line of business for 256 companies (35%).

The economy of Cayman Islands exceeded growth estimates for the 1st quarter of 2011, which was conditioned by higher levels of company formations and tourism.

In accordance with the figures on the Cayman Islands’ economy for January to March 2011 released by the Economics and Statistics Office, growth of 1.2% was achieved by the jurisdiction in the 1st quarter of 2011. This figure is higher than the 0.9% growth that was forecast for the entire 2011.

The government stated that several positive results contributed to this growth. These results include an increase in new company registrations by 11.9%. Also, the tourism industry experienced strong performance, with air arrivals up by 6.8% and cruise ship passenger numbers increasing by 8.2%. The statistics showed that the number of property transfers rose by 20.3%, which complemented a 271.2% rise in the value of properties transferred in the quarter that amounted to USD 253.9 million.

Premier and Minster for Finance McKeeva Bush commented the following: “I, along with the government, am very upbeat with respect to the future performance of the economy – which is based not only on positive results achieved in the first quarter of 2011 but also on the partnerships and initiatives that the government has forged with the private sector. We are encouraged by the 2011 first quarter results and by the Islands’ bright future prospects.”

Although there was a fall in GDP in 2010, the economy of the Cayman Islands is expected to return to growth in 2011. This was stated by Premier and Finance Minister McKeeva Bush.

When “The Cayman Islands’ Annual Economic Report 2010″ was released, Bush commenting on it saying that the positive trend would be repeated through to 2014. These expectations were based on local economic forecasts as well as on the prediction of modest worldwide growth, coupled with the anticipated results of government action in the private sector.

According to the report, the Cayman Islands’ GDP fell by 4% in 2010, which was an improvement on the 7% decline seen in 2009. This decline is attributable to problems in the construction, real estate and financial services industries. As a result, real GDP per capita decreased from KYD 43,363 (USD 52,107) in 2009 to KYD 42,605. Inflation averaged 0.3% in 2010. However, due to rising international food and oil prices, it is predicted to increase to 1.9% in 2011.

The report shows that there were 2 opposing trends in the financial services sector. On the one hand, new company registrations and new partnerships rebounded, while, on the other hand, the report reveals downturns in mutual fund registration, stock exchange listings, insurance licenses and bank and trust licenses.

In accordance with the date provided in the report, the availability of banking credit improved. Domestic credit from commercial banks grew by KYD 171.3 million. Public sector financing from the local banking sector was up by 16.8%, and credit to the private sector rose by 5%.

It is expected in the report that GDP will show a growth of 0.9% in 2011, which will be partially fuelled by a strong recovery in tourism (in 2010 it was up by 5.2%).

According to “The Cayman Islands’ Annual Economic Report 2010″, the Cayman Islands’ government can anticipate a robust performance in the financial services industry.

The Cayman Islands has been downgraded in an annual review of political and economic risks.

Aon Corporation, a leading international provider of risk management services, insurance and reinsurance brokerage, has lowered the rating of the Cayman Islands as well as 19 other countries. The Cayman rating was downgraded from a low-risk jurisdiction to medium low-risk in its 2011 Political Risk Map.

The jurisdiction was downgraded along with Antigua & Barbuda, Bahamas, Barbados, Bermuda, Dominica, Grenada, Antilles, St Vincent, Trinidad, St. Lucia and St. Kitts & Nevis because of tighter global credit conditions that could lead to an increase in sovereign non-payment risk.

Associate director of Aon Risk Solutions’ Crisis Management Practice, Beverley Marsden, said: “The perceived or actual risk of sovereign non-payment continues to be an issue in countries across the globe. For example, we have seen 13 island nations move into a higher risk category this year because of the effect of a decline in tourism on their economy.”

Although the Irish fund industry announced doubling their registered funds to 7.4%, this statistics cannot be compared with the Cayman fund industry, which, according to the Cayman Islands Monetary Authority (CIMA), goes on growing by approximately 95 funds per month.

The CIMA has reported a natural attrition rate of de-registrations of approximately 5%. This has been a typical rate over the past several years, which signifies stability in the fund industry of the Cayman Islands.

Redomiciling funds from Cayman to Malta has been discussed previously. However, this is not popular trend as the CIMA has confirmed that only 4 funds have cited re-domicilation to the EU – 2 of them to Malta and 2 funds to Luxembourg.

Cayman Finance Chairman Anthony Travers stated: “If we sent out a press release each time a Cayman fund was launched, the international media would be flooded with two such announcements each day. A doubling of registered funds to 7.4% does not constitute news. What astounds me is how these insignificant claims get column inches.”

According to a recent study carried out by International Fund Investment, 60% of investors are against more regulation because adds to increased costs with no other discernable benefits. The study also revealed that only 18% of fund managers are even considering moving funds to the European Union.

Simon Osborn of International Fund Investment said: “For the institutional investors and managers the well-understood path of the Cayman fund – non-bureaucratic, quick set up times, high quality service providers and its solid reputation is preferred Cayman is well-known and that familiarity breeds trust”.

Travers stated: “Comparing the information of the Cayman Islands Monetary Authority and the International Fund Investment report supports what the Cayman service providers are seeing”. He added that investors are not looking for increased regulation, but for returns and “the emphasis is now on stress-tested products such as Cayman’s and effective due diligence to best protect their investments”.

Research and Markets has announced the addition of the report titled “Offshore Financial Services in Cayman Islands, 2005-2009 (Databook)” to their offering.

The databook highlights key data on the offshore financial services market in the jurisdiction. The data provided in this report includes total deposits, total mutual fund investment and their market segmentation. All the data provided in Offshore Financial Services in Cayman Islands are historical and regards 2005-2009.

When reviewing total deposits, the report provides a comparison of offshore and onshore, and retail and institutional customers. When reviewing total mutual funds, it offers a comparison of offshore and onshore, and retail and institutional customers.

The report shows that, over the 2005-2009 period, deposit balances in Cayman increased at a CAGR of 15.2%. Also, over this period, mutual fund balances increased at a CAGR of 18.1%.

The report is useful for understanding how the offshore financial services market in the offshore jurisdiction has developed over the period, to get to know about the size of the deposits and mutual funds as well as to be able to make adequate business decisions through an understanding of the overall trends within the Cayman market.

The major banking and finance magazine, the Banker, has named the Cayman Islands as the top specialised financial centre for the second year running. The jurisdiction has been awarded first place by an increased margin over other jurisdictions such as Bermuda, Jersey, Guernsey, Malta, Gibraltar, Monaco and Cyprus.

With more than 40 of the top 50 banks holding licences on the island, Cayman Islands is recognised as one of the top international financial centres in the world, but the ranking of the magazine is based not simply on the size of the financial services industry, but focused on the level of international business and value offered to institutions seeking to expand their overseas operations.

The Chairman of Cayman Finance Anthony Travers said about the results: “this is yet another objective finding that reinforces the fact that Cayman is regarded by institutions… as a successful and transparent tax neutral jurisdiction from which to base international operations.” He also said that the first place award came at a time when the Cayman Islands have signed its twentieth tax information exchange agreement, and when the Cayman Islands Monetary Authority (CIMA) statistics show a continuingly robust performance by the financial services industry over the past year.

Also, according to Mr. Travers, the absence of corporate income, capital gains, payroll or property taxes is likely “to enhance Cayman’s attraction in the immediate future.”

The findings of an investigation into the effects of the global financial crisis on Cayman’s funds industry have been released by the Cayman Islands Monetary Authority (CIMA).

This report is based on statistics from more than 7 000 funds that were regulated in the Cayman Islands from 2008, which is when the crisis started.

Among the funds used for the statistics, most of the key indicators show notably weaker performance in 2008 than was reported in 2007. There was an 18% fall in subscriptions, a 42% increase in redemptions, an almost 3-fold dip in net income, and a 25% decrease in net assets.

According to the data revealed by the CIMA, some shifts could be attributed to the crisis. CIMA stated: “The proportion of funds with assets totalling USD 50 million or less rose to 52% in 2008, up from 43% in 2007. Although the largest proportion of assets continued to be allocated to master funds, the dollar value of assets allocated to that structure decreased by 24%. The instruments that saw the largest falls in asset allocation were: short bonds, which fell by 75%; long equities, which fell by 56%, and long bonds, which fell by 53%.” CIMA noted that “following on from trends seen in both 2007 and 2006, 2 investment strategies, Multi-Strategy (39%) and Long/Short Equity (22%), remained dominant in attracting the majority of assets, garnering USD 1 034 billion of the aggregate net assets.”

The funds industry was severely affected by the crisis, however, just 7% of funds suspended trading in 2008, which is up just marginally on that recorded in 2007 (5%), which the authority explained by the fund industry’s resilience in the jurisdiction.

Cindy Scotland, CIMA’s Managing Director, said that the authority goes on to publish statistical information on the funds industry with a view to improve transparency and extend global awareness of the structure and performance of the industry.

She said: “These are very valuable facts and figures. With the Cayman Islands estimated to have a major portion of the world’s hedge funds domiciled here, the information in the report provides a good gauge of what was happening in the global funds industry at the peak of the financial crisis.”

The performance of 7 325 funds, which is about 82% of regulated funds in Cayman, were aggregated in the report.

According to a new survey from weekly trade publication Business Insurance, the Cayman Islands is the 2nd jurisdiction in captive insurance sector in the world.

The Business Insurance ranks jurisdictions basing its top on the number of licensed captives at the end of 2009. According to the survey, the Cayman Islands is 2nd only to Bermuda.

Bermuda (885) is leading the way, followed by the Cayman Islands (780). Vermont (560) takes the 3rd position followed by Guernsey (355), the British Virgin Islands (285), Luxembourg (251), the Isle of Man (145), Dublin (114), Switzerland (42), Gibraltar (17), Malta (9) and Jersey (3).

On March 3, 2010, the Cayman Islands Economics and Statistics Office released the 2009 Third Quarter Economic Report that shows further deterioration in the jurisdiction’s economy in all but the banking sector.

The report compiles all available economic indicators as at end of September 2009 and provides their percentage change since end of September 2008.

The significant change outlined in the report is annualized gross domestic product (GDP). According to key indicators, in the 1st 3 quarters of 2009, GDP decreased by 3.6%.
Significant declines are as follows:
• merchandise imports fell by 18% largely due to reductions in building materials, transport and transport-related items, and manufactured items;
• work permits decreased by 9.5%;
• new company registrations plummeted by 39.2%;
• mutual fund registrations saw a decline of 4.4% to total 9,838;
• the number of total visitor arrivals fell by 3.8%, due to a 13.1% slide in air arrivals and a 1.9% in cruise passengers;
• the value of building permits plummeted by 28.5%;
• the property market suffered a steep decline as the value of property transfers fell by 40.0%.

On the other hand, there were strong increases in domestic credit by commercial banks and water production. Domestic credit by commercial banks grew by 17.1%, while water production
grew by 4.6%.