Cayman reinsurers challenge NAIC over proposed capital rules
Cayman’s reinsurance industry has urged US insurance regulators to reconsider their approach to a potential tightening of capital requirements.
The proposals being considered by the National Association of Insurance Commissioners, the US standard-setting body, are aimed at addressing reinsurance recapture and counterparty risk.
The rule tightening has an implementation target of the end of 2027 and would target jurisdictions not deemed to have regulatory equivalence with US standards, including Cayman.
Bermuda has reciprocal jurisdiction status from the NAIC and Cayman has applied to get the same.
Cayman has emerged as a rapidly growing challenger to Bermuda’s dominance in the offshore life reinsurance market. By the end of 2025, Cayman’s life and annuities sector held about $101 billion in total assets, up from $23 billion in 2020.
Bermuda remains the sector leader — total assets across its long-term insurance sector exceed $1.5 trillion.
In two letters to the heads of the NAIC’s Life RBC (E) Working Group and Financial Condition (E) Committee, the Cayman International Reinsurance Companies Association, said the association supported regulatory scrutiny of the risks but argued that the NAIC had moved towards a capital solution before establishing whether one was necessary.
And the association argued that targeting those jurisdictions without US regulatory equivalence would have an “anti-competitive” effect.
“Reciprocal and qualified jurisdiction status are indications that the NAIC has conducted an evaluation of the jurisdiction’s reinsurance supervisory system but that is not the same as considering an individual reinsurer’s risk,” one of Circa’s two letters states.
“In fact, recent experience involving a reinsurer in a reciprocal jurisdiction is clear evidence that jurisdiction status alone is not an adequate proxy for recapture risk. A rational reinsurance market needs a level playing field.”
The letter added that concentrating reinsurance capacity in a small number of jurisdictions “creates its own exposure to jurisdiction-specific disruption”.
Faramarz Romer, chairman of Circa, said: “Jurisdictional status cannot serve as a proxy for the likelihood of recapture. Recapture risk exists across all reinsurers in varying degrees, and a charge that does not reflect that variation is not risk-based.
"If a recapture factor is ultimately developed, it should capitalise demonstrated residual risk, and reflect the assuming reinsurer’s financial strength, capitalisation and ability to meet its obligations, rather than the jurisdiction in which the reinsurer is domiciled.“
In its second letter, to the NAIC’s Financial Condition (E) Committee, Circa questioned the process for choosing additional capital as a solution before public analysis showed that a capital shortfall exists.
Mr Romer said: “Exposing implementation of a decision is not the same as exposing the decision itself. The NAIC’s public process should permit stakeholders to address not merely the calibration of a predetermined remedy, but also the predicate for that remedy.
"Our request is straightforward: establish the need, evaluate the alternatives, and allow the analysis to determine the outcome."
The association argued that regulators should first identify the risk and establish its materiality, assess existing safeguards, quantify any residual exposure and consider the available regulatory tools before determining the appropriate response.
“This is not an argument against additional RBC,” Circa said in its letter. “It is an argument that the analysis should determine whether RBC is appropriate rather than beginning from the assumption that it is.”
Circa also raised concerns about a year-end 2027 implementation objective, arguing that the timetable should follow the technical analysis rather than influence its outcome.
Circa asked the NAIC to revise the referral, provide a public forum for consideration of the evidence and alternative regulatory tools, co-ordinate the work with the RBC Model Governance initiative and allow the analysis to determine the eventual timetable.
• For Circa’s letters to the NAIC, see Related Media
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