The consolidation of healthcare companies is the primary reason there has been a reduction in the number of captives operating in Cayman over recent years, according to those speaking to Captive Intelligence during this year’s Cayman Captive Forum.
Experts from Strategic Risk Solutions, Artex, Kensington Management Group and USA Risk were featured in a GCP #78 report from the Forum.
Colin Robinson, director at Strategic Risk Solutions, said: “Certainly, consolidation has been a key driver of the decline in numbers of captives that we’ve had in Cayman. Going back 10 years ago, we would have had numbers in the 700s.”
However, Robinson noted that this isn’t a dissimilar story from what is happening in other mature jurisdictions where older captives come to the end of a natural cycle or M&A activity at parent level prompt re-evaluation of strategy and consolidation where appropriate.
Adrian Lynch, executive vice president, North America, Bermuda & Cayman at Artex Risk Solutions, explained that the consolidation began with the introduction of ObamaCare and healthcare reforms in the United States.
“You had a number of smaller community hospitals that were really struggling for cashflow and really struggling for sustainability,” he said.
“Some of the larger systems might have 180 days cash on hand, and some of the smaller systems were living hand to mouth.
“What ended up happening was a lot of the larger systems picked up some of these smaller systems, and then ultimately if they had captives, they ended up consolidating the captives.”
Captive consolidation in Cayman is also not necessarily viewed as a negative development, due to the new underwriting opportunities that larger captives allow.
“We have seen a lot of consolidation on the captive side, which means potentially less captives,” said Robert Leadbetter, senior vice president at USA Risk.
“Some people were concerned about that, but from my perspective, what you end up having is rather than have two smaller captives, you have one bigger or stronger captive.
“You now have captives that are bigger, stronger, more complex, and I think that’s a good thing.”
Due to the larger size of the captives, many of them are now able to add more lines of coverage.
“So, one of the things that we’ve seen over the last couple of years is a growth in the lines of coverage,” Robinson said.
He highlighted that medical stop loss has been growing and a lot of his clients, if they haven’t already implemented it “are looking to implement it at some point”.
Erin Brosnihan, president at Kensington Management Group, believes there are opportunities for captives across many different lines of coverage including cyber and E&O.
“There are always opportunities for new lines of coverage to assist companies with their risk management profile,” she said.
Robinson noted that there is more sophistication when it comes to captive structures.
“We’re not just seeing the plain vanilla, single-parent captives, we’re also seeing a lot more sophistication, whether it’s through ownership or whether it’s lines of coverages,” he said. “And I don’t see that slowing down for Cayman as a jurisdiction at all.”
Lynch believes it is a very interesting time for Cayman as a domicile.
“We have jurisdictionally, a lot of very well capitalised captives that are sitting on a lot of surplus,” he said.
“They’re in good standing with the regulator and as an underwriter of choice, they have some options as to what they do. It’s a very interesting time for the future.”