Differentiating between Cayman Island health care captives and Gemstone VII

By Andrew Barile

Andrew Barile Consulting Corporation


The Cayman Islands are the world's second-largest captive insurance company domicile and premier center for health care captives. The diverse insureds or reinsureds available include transportation, professional and institutional healthcare, agricultural co-operatives, fast food franchisers, automobile dealerships, construction and construction management firms, employee leasing organizations and employee benefits. Cayman Island captive insurance companies have been successful and have created significant profit centers for their owners over a period of 30 years.

Do not confuse the above-mentioned Cayman Island captive insurance companies with Gemstone VII, a $1.1 billion credit default obligation that has little oversight from regulators and is a financial disaster. Gemstone was not required to be registered with the Securities and Exchange Commission, and it was listed on the Irish stock exchange, but never traded in Ireland. Note: They call Gemstone an instrument or hybrid -- Wall Street makes up its own names as they go along. Did Gemstone's creator, Deutsche Bank, promise attractive returns with virtually no risk? The M&T Bank Corporation bought into the investment and is currently suing Deutsche Bank over its $80 million loss for its investment in Gemstone.

What kind of bonds would go into Gemstone? How about the fact that one of the mortgage bonds in Gemstone had been made by New Century Financial, with 3,949 home loans that were made to California and Florida homeowners without fully verifying the borrowers' income and assets? The bonds were gone in 2008, with Gemstone owing Deutsche Bank $30 million on this investment. Did Gemstone violate the conditions of its private placement?

To add further to this economic fiasco, Moody's Investors Service, who had once rated these C.D.O. securities triple A, has now downgraded these same securities, i.e., $449 billion in securities similar to Gemstone VII, or 82 percent of all those outstanding.

Understand that the Cayman Island Captive Insurance Company, as a profit center, and the Cayman Island Gemstone VII Credit Default Obligation instrument, as a financial loss, have only in common the beautiful beaches of the Cayman Islands. Look to experienced professionals to steer you clear of the mine fields and fundamental failings in the financial system.

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