Cayman Islands: Offshore Business Sectors
See Offshore Business Review – Insurance for a more general treatment of captive insurance companies.
The Cayman Islands insurance sector is regulated under the Insurance Law 1979 as amended and revised in 2004 and 2008. Class A insurance licenses cover domestic insurance in Cayman itself; Class B licenses cover Cayman or (registered) foreign companies conducting external business; restricted Class B licenses are for captives. Applications for licenses are made to the Cayman Islands Monetary Authority (CIMA). See Law of Offshore and Offshore Legal and Tax Regimes for further details of the licensing regime, minimum capital requirements and fee levels.
Legislation in 1998 introduced a Segregated Portfolio Company Law. The SPC is an exempted company which may create one or more segregated portfolios in order to segregate the assets and liabilities of the company held within or on behalf of the portfolio from the assets and liabilities of other portfolios. As originally passed, SPCs were available only to certain types of insurance company, but in 2002 amendments extended the provisions relating to segregated portfolios to any exempted company. In essence, the new law provided that any new company may apply to be registered as a segregated portfolio company. A segregated portfolio company must pay additional fees and must provide notice to the Registrar of the names of all segregated portfolio accounts created.
The changes allow an existing company to convert into an SPC, although a number of criteria will need to be met, including the written consent of each creditor of the company and the approval of the Cayman Islands Monetary Authority (CIMA). An SPC is also able to create separate portfolios by reference to a series of shares, as well as by reference to separate classes of shares.
The improvement to the SPC structure, adopted from Guernsey legislation, ensures that there is no 'flow over' from an insolvent cell to general assets. A key change for mutual fund issuers is a provision that secured creditors are able to enforce their security against a segregated portfolio, despite the existence of a receivership order against that portfolio. This ensures that a segregated portfolio is acceptable to - and can be rated by - the rating agencies in the same manner as an exempt company.
In 2004 the Cayman Islands had the second-largest captive insurance community in the world, after Bermuda. The year 2000 saw 48 new captives set up in the Caymans, bringing the total to 535. By the end of 2002 Cayman had 642 captives, having beaten Bermuda into second place for new formations in the year with 97 new companies.
Hurricane Ivan in 2004 damaged the Cayman Islands in physical terms, but did not halt the expansion of the insurance sector. According to CIMA, in the weeks that followed the devastating hurricane, nine licences were granted to captive insurance companies, and the authority also issued an insurance management licence to Strategic Risk Solutions (Cayman) Limited.
There were a total of 750 Class “B” companies under the supervision of the Insurance Supervision Division at the end of June 2013, nine more than at the end of 2012. Pure captives and Segregated Portfolio Companies represent the two main categories of Class “B” entities, with 412 and 134 companies respectively.
In June 2008, the Cayman government elaborated on planned measures that would be taken during the 2008/09 fiscal year to further develop the reinsurance sector in the Cayman Islands. The measures are based on recommendations submitted to government on April 23, 2008 by the Reinsurance Task Force (RTF).
The RTF's recommendations focused on promoting commercial certainty for prospective reinsurance firms, specifically through provisions in Immigration Law via the business staffing plan regime, as well as progressive approaches to the regulation of reinsurance companies in Insurance Law.
The RTF also recommended that reinsurance firms who wished to take advantage of the Cayman Islands as a location enter into a "social contract" with the government on career, education and training opportunities for Caymanians, reflecting a partnership approach to joining the Cayman Islands financial services community.
The RTF comprises senior and experienced figures in the Cayman Islands insurance industry familiar with the reinsurance sector as well as members from government's Financial Services Council.
"The reinsurance business plays to Cayman's natural strengths," commented Alden McLaughlin, Minister for International Financial Services Policy. He pointed to Cayman's institutional business specialisation, including a vibrant insurance sector; existing professional infrastructure; experience in reinsurance products (sidecars and catastrophe bonds), and the presence of the hedge fund industry – a natural source of capital for reinsurers.
"We hope to attract industry partners who recognise our strengths and want to grow their reinsurance business in a conducive location," said Minister McLaughlin, adding: "We also want to attract firms who will generate substantial activity for and in our financial services sector and who are willing to provide new careers and training opportunities for Caymanians."