A new Statement of Guidance ("Guidance") was recently issued by the Cayman Islands Monetary Authority ("CIMA") which sets out their minimum standards in relation to professional indemnity ("PI") insurance coverage (i.e. for legal costs and claims by third parties for damages arising from acts, omissions or breaches of professional duty) to be maintained by Cayman Islands licensees when conducting regulated activities.1
The Guidance applies to the following licensees ("Licensees"): Trust Companies; Insurance Brokers, Insurance Managers and Insurance Agents; Mutual Fund Administrators;2 Securities Investment Businesses; Corporate Service Providers and Company Managers; and Corporate and Professional Directors.
Accordingly, the Guidance does not apply to regulated mutual funds under the Mutual Funds Law, Excluded Persons under the Securities Investment Business Law, registered private trust companies under the Banks and Trust Companies Law, or registered directors under the Directors Registration and Licensing Law.
The Guidance describes the minimum policy features of the Amount of Cover (Limit), Excess/Deductibles, Scope of Indemnification, Exclusions, Persons Covered, Automatic Reinstatement, Legal Costs, Fraud/Dishonesty/Infidelity, Retroactive Cover and Run-off Cover.
In particular, the Guidance provides that Licensees should maintain adequate PI insurance which, where practicable, should be held with an insurer licensed to carry on domestic business in the Cayman Islands. The Guidance allows a Licensee to use group insurance cover (e.g. outside of the Cayman Islands) where the equivalent requirements are met. CIMA also recommends that an A.M. Best rating of B+, or its equivalent, should be the minimum rating criteria when choosing an independently rated PI insurance provider.
In determining adequate cover, Licensees should undertake a risk assessment of possible loss exposure. The Guidance sets out a number of factors for consideration in the assessment. The PI insurance cover should be assessed at least every two years.
Although some Licensees may require higher coverage, the Guidance indicates that there should be a minimum limit of at least US$1 million for any one claim and US$1.5 million in aggregate. However, where a Licensee may be required by statute (e.g. a Regulatory Law) to maintain a higher amount of cover, the statutory amount shall prevail.
Upon written application, CIMA can consider and approve alternative arrangements that are equivalent in effect to, and give no less protection than, adequate PI insurance coverage (e.g. parental guarantee).
For further information, please liaise with your usual Maples and Calder contact or any of the above contacts.
1 The insurance cover should include activities of current and former officers and employees, as well as service providers, agents and consultants working for the Licensee (unless the latter category has sufficient insurance cover of their own).
2 CIMA acknowledges that there is no statutory requirement currently under the Mutual Funds Law for Mutual Fund Administrators to maintain insurance. However, CIMA expects Mutual Fund Administration Licensees to apply the Guidance as a matter of best practice.
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.