variable annuities.

Just as the Caymans' physical presence reinsurance sector begins to gather steam, some years behind the Bermuda curve, the Caymans have taken an early lead in two other areas of offshore insurance: cat bonds and variable annuities.

Of the first 16 catastrophe bond securitisations, all within the last three years, 12 were carried out in the Cayman Islands. As this particular risk financing mechanism catches on, Cayman will not expect to retain its 75 percent market share, but it has established itself as the leading domicile for such deals.

Those who end up as market leaders often start out that way, too, particularly in fields where the accumulation of experience can be a unique selling point.

Bermuda probably incorporated three-quarters of the first 16 captive insurers and today remains the world leader in that sector, with about a third of the total market.

By its very nature, securitisation, which involves significant amounts of capital, is a natural for Cayman, which is the world's fifth-largest offshore banking centre.

In its simplest form, securitisation is a process whereby claims capital is paid into a bank or other financial institution at the start of the proceedings. The policy works well for low-frequency, high-dollar value incidents such as earthquakes and hurricanes.

Annuities are, similarly, a natural for Cayman and variable life annuity business is developing in Cayman among US taxpayers. Nowhere, perhaps, is the OECD's old-fashioned notion of offshore less relevant.

Hardly anyone buys an offshore annuity specifically to save tax. The annuities permit far greater capital appreciation in an offshore environment, even though the proceeds will almost certainly be subject to US taxes when they mature.

The largest Cayman reinsurer with a physical presence on Grand Cayman is Scottish Annuity & Life Holdings (SALH), which provides in-force blocks of annuity and life insurance obligations and customised variable life insurance products to high net worth individuals and families.

SALH was set up with $250 million of capital, and the launch is expected at any moment of another similarly-sized Cayman-based reinsurer.

Cayman has been transformed in the past few years into a serious insurance jurisdiction. Its first wave of insurance companies comprised captives, a history Bermudians would understand only too well.

Now, as Cayman takes its place alongside the other major insurance corners of the world, the 'Bermuda model' appears to be working well, if slightly differently, about 1,500 miles to the south-west.

Next: In the last of the series, a look at Cayman's telecommunications and its medium-term prospects.