Executives, regulators and experts have voiced concerns in recent months about the emerging risks among US life insurers as private equity expands its influence on the sector. In an October study, economists from the Bank for International Settlements attributed part of the industry’s vulnerabilities to its growing use of offshore reinsurance, where capital rules are more flexible than in the US
The economists listed Cayman as one of those jurisdictions, as well as Bermuda, where Apollo’s life insurer Athene owns a reinsurance entity.
Apollo Global Management Inc. compared the potential risks of some US insurers moving to the Cayman Islands with the swift collapse of Silicon Valley Bank, which triggered a crisis among regional lenders.
The British overseas territory is the “home of regulatory arbitrage,” Apollo said in a presentation Thursday, which said Cayman’s insurance market insufficiently manages risk and doesn’t hold sufficient assets against its liabilities.
Silicon Valley Bank’s 2023 implosion sprang from similar factors, Apollo said.
“Cayman may become the insurance sector’s SVB moment,” according to the presentation, which said the US insurance system’s exposure to the territory more than doubled in two years and is continuing to grow.
The Cayman Islands Monetary Authority said in a previous statement that it’s a founding member of the International Association of Insurance Supervisors, has agreements to share information with US states, collaborates with overseas regulators during inspections and examinations of firms, and regularly reviews and updates its regulatory framework.
“There is no basis for concern,” CIMA said in the 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 IAIS.”
A representative for CIMA didn’t have an immediate comment.
Apollo Chief Executive Officer Marc Rowan warned of more bankruptcies related to the island earlier this week.
“We’ve now seen three bankruptcies in Cayman — we will see more,” Rowan said at the Goldman Sachs Financial Services Conference Wednesday. “I do not believe that Cayman will be a viable US jurisdiction over 24 months.”
Executives, regulators and experts have voiced concerns in recent months about the emerging risks among US life insurers as private equity expands its influence on the sector. In an October study, economists from the Bank for International Settlements attributed part of the industry’s vulnerabilities to its growing use of offshore reinsurance, where capital rules are more flexible than in the US.
The economists listed Cayman as one of those jurisdictions, as well as Bermuda, where Apollo’s life insurer Athene owns a reinsurance entity.
“We operate in a heavily regulated industry and maintain the same policyholder benefit reserves for our Bermuda reinsurance subsidiaries as we do for our US insurance subsidiaries, where $1 billion of reserves in the US is equal to $1 billion of reserves in Bermuda,” the firm said in a previous statement.
In the presentation Thursday, Apollo pointed out that insurers such as Prudential Financial Inc. and MetLife Inc. also operate in Bermuda. The firm also pointed to Athene’s A+ credit rating by S&P Global Ratings and its $35 billion of regulatory capital.