Å˽ðÁ«´«Ã½Ó³»­

The small crowd in pastel polo shirts and sunglasses boarded the catamaran for an afternoon cruise on the Caribbean’s sapphire waters. Tucked under their drinks were napkins emblazoned with a slogan akin to a pickup line: “Let’s go beyond business small talk…”

It was a fresh boatload of US insurance executives, getting wooed to the Cayman Islands.

This is the latest front in a controversial years-long campaign by offshore reinsurers looking to drum up business and provide hundreds of billions of dollars of relief to US annuities and life insurers. While Bermuda pioneered the rush, proponents of the Cayman Islands aim to narrow the gap, touting its capital rules as even more flexible.

It’s enough that Apollo Global Management Inc., known for its operations in Bermuda, is urging US authorities to intervene.

“Reserves have moved offshore to the Cayman Islands with a fraction of the capital of the US or the Bermuda system, putting the system at risk,” Apollo Chief Executive Officer Marc Rowan told shareholders in February.

Where the US gets reinsurance — and how carefully it’s regulated — matters dearly to American savers, as it helps insurers meet their obligations when life policies and annuities come due, sometimes decades after purchase.

Reinsurers from the Cayman Islands provided about $74 billion of US insurers’ reserve credits last year, more than double the level just a half-decade ago, according to data from S&P Global Market Intelligence. And that’s despite the breakdown of a few deals for idiosyncratic reasons in 2024. Analysts tracking the market widely expect the momentum to resume.

“There is no basis for concern,” the Cayman Islands Monetary Authority said in an emailed statement. “While CIMA’s regulatory framework may be different to other jurisdictions, it fully aligns with international standards and aims to achieve the same supervisory outcomes as promulgated by” the International Association of Å˽ðÁ«´«Ã½Ó³»­ Supervisors.

The regulator noted that it’s a founding member of the IAIS, has agreements to share information in US states, collaborates with overseas regulators during inspections and examinations of firms, and regularly reviews and updates its regulatory framework.

‘Flexible Regime’

Last year’s catamaran cruise, sponsored by Grant Thornton, was part of an inaugural industry conference dubbed ReConnect, hosted by the Cayman International Reinsurance Companies Association to drum up more business. Sponsors include the islands’ government.

The main event is poised to play out again next week. Beyond the insurers, the roughly 600 attendees will come from a lengthly list of accounting firms and banks that enable their deals, such as EY, Goldman Sachs Group Inc. and JPMorgan Chase & Co.

Private equity firms have helped propel a dramatic expansion of the US life insurance industry in recent years, fueling demand for offshore reinsurance. But looser capital rules in those jurisdictions have raised alarms among critics. Bermuda — by far the biggest market with deals providing $920 billion of relief to US life insurers — is trying to assuage such worries by stepping up oversight. It turns out that as one territory toughens rules, another starts to see more interest.

“Would that cause companies to shift to Cayman? We’ve seen that on the margin,” Jamie Tucker, a senior director in Fitch Ratings’ North American insurance group, said in an interview. “It’s a more flexible regime.”

Counterparty Risk

The modern reinsurance market took shape in the wake of Hurricane Andrew in 1992. The storm was the most destructive of its era, inflicting about $36 billion of inflation-adjusted losses on insurers. With the industry desperate to avoid such shocks in the future, eight reinsurers known as the “Class of 1993” set up shop in Bermuda.

That hub grew over decades, thanks in part to the island’s business-friendly practices, including quick and efficient regulatory decision-making.

By the end of 2023, offshore reinsurers were providing almost twice as much reserve credits to US life insurers as their total capital, raising concerns. In a note published in February, Moody’s Ratings analysts said they considered offshore reinsurance to be credit negative.

One reason is counterparty risk. When things go wrong, chasing money owed or seizing assets across borders can take “years of very expensive litigation to get even pennies on the dollar back,” said Tom Gober, a forensic accountant who specializes in life insurance.

In such cases, the Cayman Islands can be especially opaque, he said.

“At least from Bermuda, I can obtain an audited financial statement of the reinsurer,” Gober said. “In the Caymans, you cannot get any financial information — period.”

Variety of Models

One way Bermuda authorities have sought to address concerns in the US is by taking a more prescriptive approach to how firms calculate their necessary reserves.

“They have now specified what scenarios ought to be used,” said Alan Routhenstein, an actuary contracted to actuarial services provider Graeme Group.

The Cayman Islands, in contrast, allows more flexibility. For example, some insurers are eligible to develop their own models and, once approved by local regulators, use them to calculate their requirements.

In its statement, the Cayman Islands Monetary Authority said reinsurers submit quarterly reports on their finances and capital, “which are closely reviewed.” The regulator also monitors their solvency and compliance with licensing conditions.

“CIMA has published detailed guidelines for insurance entities seeking to use internal capital models,” the regulator added. “These guidelines are designed to ensure that companies maintain a strong risk-management framework, both under normal conditions and in stressed scenarios.”

The islands’ tax regime is also lighter. While Bermuda has adopted the 15% minimum tax rate prescribed by the Organization for Economic Cooperation and Development, authorities in the Cayman Islands don’t levy a corporate tax.

The government is planning to seek a US industry designation that would allow some of the islands’ reinsurers to post less collateral. So far, the National Association of Å˽ðÁ«´«Ã½Ó³»­ Commissioners has granted that status to Bermuda, France, Germany, Ireland, Japan, Switzerland and the UK.

That’s drawing public pushback from prominent names — among them, Jim Belardi, the head of Apollo’s Athene insurance arm, who addressed a gathering of fixed-income investors in February: “The NAIC has a choice to evolve and address the hot-button issue in the Cayman Islands.”

Photograph: The waterfront in Grand Cayman. Photo credit: David Rogers/Getty Images