The Cayman Islands Legislative Assembly recently passed an
amendment to the Insurance Law (the "Amendment")
permitting certain insurers formed as segregated portfolio
companies ("SPCs") to register portfolio insurance
companies ("PICs"). As of the date of this publication
(12 April 2013), the Amendment, while enacted, has not yet come
into force.
The Amendment permits a new or existing SPC to incorporate a PIC
on behalf of a relevant cell or segregated portfolio. The
PIC, instead of the segregated portfolio, would then conduct the
relevant insurance business. Unlike the traditional
segregated portfolio or cell, a PIC will be a separate legal entity
(i.e., an exempted company limited by shares).
A PIC will not need to be separately licensed as an insurance
company as it will operate under the licence held by the SPC.
It will, however, be regulated by the Cayman Islands Monetary
Authority ("CIMA"). Among other things, a PIC must
include in its name the letters "PIC" or
"P.I.C." or the words "Portfolio Insurance
Company," carry on insurance business only in accordance with
its business plan, maintain a margin of solvency and adequate
capital in accordance with prescribed requirements (such
requirements are still to come), maintain adequate arrangements for
the management of risks, and maintain an effective system of
governance approved by CIMA.
Unless otherwise provided by CIMA in writing, a PIC will also be
required to submit an annual return to CIMA within six months of
the end of its financial year along with audited financial
statements and in certain cases, for example where the PIC writes
long term business, an actuarial valuation of its assets and
liabilities and a certification of solvency.
The Amendment requires PICs to have a minimum of two directors and
permits PICs to have the same directors, managers and officers as
the SPC or such other persons approved by CIMA as fit and proper
persons.
The Amendment also requires a PIC to be at all times controlled by
the SPC and an SPC may not control more than one PIC for each
segregated portfolio. In addition, pursuant to the Amendment,
no voting shares in a PIC can be issued, transferred or disposed of
in any manner without the prior approval of CIMA.
Some benefits of a PIC include:
- the ability to have a separate board of directors from that of the SPC provides flexibility in terms of corporate governance;
- a PIC can contract with any person including its own SPC and other cells or PICs within the same SPC which is helpful in terms of reinsurance, quota sharing and pooling;
- counterparties who are not familiar with segregated portfolios may more readily accept a PIC as opposed to a segregated portfolio;
- a single PIC can be wound up without affecting its controlling SPC or other PICs which was not previously possible within a SPC structure; and
- a PIC can easily be converted into a standalone captive insurance company.
The Amendment also creates a new category of Class B(iv) insurer
and amends the Class B(iii) category of insurer so that pursuant to
the Amendment, an insurer will now fall within Class B(iii) if 50%
or less of its net written premiums originate from the
insurer's related business and annual net earned premiums are
less than US$20 million. An insurer will fall within Class
B(iv) if 50% or less of its net written premiums originate from the
insurer's related business and annual net earned premiums are
equal to or greater than US$20 million.
The Cayman Islands government has stated that the Amendment is
more cost effective and efficient than introducing standalone
incorporated cell company legislation, will boost Cayman's
competitiveness, and will help contain the costs of doing business
for insurers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.