A very warm and festive welcome to this 10th edition of Conyers Coverage. As 2023 comes to a close, our team is already reflecting on what has been a banner year for the Cayman Islands (re)insurance industry.
Consistent with our experience in recent years, the last few months have seen many exciting new entrants to the market, the jurisdiction is expecting a new PB in terms of new licensees and business written and the pipeline of new licensees for next year is white hot.
In this edition we have varied pieces from our insurance team and have included several topical updates from our regulatory and litigation colleagues. We also introduce you to a key member of our team and share some highlights from recent industry events (we tried but couldn't help ourselves mentioning some of the awards and recognition our team received recently... it's the time of year for indulging after all!).
From me and the entire Conyers insurance team, an enormous thank you for the continued support this year and we wish you all a joyful holiday season and a very happy and prosperous new year.
Access Conyers Coverage Issue 10.
Conyers Coverage
A very warm and festive welcome to this 10th edition of Conyers Coverage. As 2023 comes to a close, our team is already reflecting on what has been a banner year for the Cayman Islands (re)insurance industry. Consistent with our experience in recent years, the last few months have seen many exciting new entrants to the market, the jurisdiction is expecting a new PB in terms of new licensees and business written and the pipeline of new licensees for next year is white hot.
In this edition we have varied pieces from our insurance team and have included several topical updates from our regulatory and litigation colleagues. We also introduce you to a key member of our team and share some highlights from recent industry events (we tried but couldn't help ourselves mentioning some of the awards and recognition our team received recently... it's the time of year for indulging after all!).
From me and the entire Conyers insurance team, an enormous thank you for the continued support this year and we wish you all a joyful holiday season and a very happy and prosperous new year.
Challenges of Taking Security over the Shares of a Licensed Insurer
5 Hot Regulatory Updates for Insurers
Removal of Cayman from FATF Grey List
Debunking Common Cayman Clichés: Episode 2 – Confidentiality Requirements
Converting a PIC to a Standalone Licensed Entity
Meet the Team: Spencer Vickers
Cayman Islands Shareholder Remedies: Stays in Favour of Arbitration
Orienteering Change: Navigating Restructuring Under the New Cayman Islands Regime
Directors' Duties: The Next Chapter
Welcome to New Market Entrants
Thank You for Joining Us at the Cayman Captive Forum
Legal 500 2024 Results: Conyers Retains Tier 1 Status
Captive International Cayman Awards 2023
A Half Century of PICs
Derek Stenson, Partner
This year marks the 25th year anniversary of the Segregated Portfolio Company ("SPC") in the Cayman Islands. The SPC platform has been used to create hundreds of segregated portfolios/cells but this year we are also celebrating the jurisdiction surpassing a half century of registered portfolio insurance companies (PICs), the lesser known sister to a standard cell/segregated portfolio.
For a refresher on SPCs and PICs check out the following links to our briefing papers on SPCs, PICs and to our explanatory video on PICs. Also, a special shout out to our very own Paul Scrivener (consultant in our insurance team) who conceived of the PIC product and was very heavily involved with Government and the Cayman Islands Monetary Authority ("CIMA") in the preparation of the related PIC legislation.
What can we say on PICs, they're fun! Since becoming a menu option in Cayman, they have long surpassed their anticipated utility and have proved largely, in our experience, to have become a fantastic problem solving tool when needed. Our team has been involved in the vast majority of all the PICs registered in Cayman so we thought it might be beneficial to share some of that experience and reflect in this piece on some of the uses we have found for PICs:
- Starter insurer: similar to a rent-a-cell scenario, PICs have proven useful for clients who either do not need a full standalone insurer/captive but are interested in having their own carrier without having to assume all the rigour of a fully licensed entity. In time and after some experience a number have transitioned to become fully licensed in their own right;
- M&A: SPCs cannot avail of the statutory merger mechanics in our Companies Act but we have novated SPC business to a PIC which can then be merged which has avoided a lengthy and expensive scheme of arrangement or having to get involved in lengthy novation/LPT agreement negotiation;
- Warehousing: PICs have been used to season books of business for a variety of reasons whose ultimate destination is elsewhere but the related parties want much more control over the underwriting vehicle with a PIC therefore meeting their requirements;
- Side-cars: PICs have proven useful as vehicles to underwrite specialty lines very different to the conventional business written in the cells of the client's SPC;
- Joint ventures: as part of side-car structures, clients have either partnered with another source of capital or set up a PIC to enable them to accept capital from third-party investors (separate and distinct from their original investors) but in a vehicle running effectively parallel to their primary SPC vehicle;
- Run-off vehicles: PICs have been used effectively as specialty run-off entities which has proven to be an efficient and cost-effective approach to running off programs.
In our experience, if we're looking for a structuring solution
for SPC clients, PICs often offer an answer. We're looking
forward to finding out what's next for PICs in Cayman.
Challenges of Taking Security over the Shares of a
Licensed Insurer
Michael O'Connor, Partner and Philippa Gilkes,
Counsel
Our insurance finance practice continues to grow at pace and is now regularly called on by clients to assist on credit facilities being put in place for Cayman licenced insurers. Traditionally the transactions and facilities we worked on in this space leaned heavily towards letter of credit ("LOC") transactions, but with the surge in growth of more complex structures and an increase in the number of Cayman based reinsurers, many of these transactions are now complex multi-jurisdictional deals involving security over Cayman shares, bank accounts and contractual rights.
5 Hot Regulatory Updates for Insurers
Róisín Liddy-Murphy, Counsel and Sarah
Howie (Farquhar), Senior Associate
- Rule on Corporate Governance for Regulated Entities
– Effective Date 14 October 2023
The Rule on Corporate Governance has introduced notable revisions to the application of the Rule to insurers to include the mandatory requirement for an audit committee to be appointed and policies to be adopted on conflicts of interest and codes of conduct, in addition to related procedures including resignation, termination and disqualification procedures for Directors and Senior Management. As a result of the revisions, (re)insurers are to consider updates required to their corporate governance framework and policies, including the establishment of an audit committee.
- Rule and Statement of Guidance on Internal Controls for
Regulated Entities Effective Date 14 October 2023
The Rule and Statement of Guidance provides five fundamental components of an internal controls framework to include 1. Control Environment, 2. Risk Identification and Assessment, 3. Control Activities and Segregation of Duties, 4. Information and Communications and 5. Monitoring Activities and Correcting Deficiencies (the "Fundamental Components"). The changes have significantly bolstered the requirements for insurers. It is advisable that the Board review and consider internal controls at the insurer with reference to the Fundamental Components and consider (and document) how internal control measures can be improved.
- New Rule and Statement of Guidance on Reinsurance
Arrangements which comes into effect May 2024
(Re)insurers to consider if their outward reinsurance programme is appropriate to the size, nature, scale and complexity of their business and ensure strategy is documented appropriately in the Business Plan or standalone policy.
- Stress Testing for Insurers
On 28 June 2023, CIMA released a Supervisory Information Circular: Stress Testing for Insurers. The Circular applies to all insurers licenced by CIMA to carry out (re)insurance business and supplements CIMA's Rule on Risk Management for Insurers which requires insurers to conduct stress tests and scenario analyses. The Circular provides guidance to (re)insurers in developing and implementing stress testing programs and processes. It further outlines examples of stress testing scenarios which CIMA expects Class A, B (iii) and D insurers to consider.
- Rule and Statement of Guidance – Nature
Accessibility and Retention of Records For Licensees Conducting the
Business of Company Management ("New Company Management
Rule")
New licences under the Companies Management Act, Banks and Trust Companies Act, Mutual Fund Act and the Insurance Act which are conducting the business of company management will be in scope of the New Company Management Rule issued on 31 August 2023.
For existing insurance licensees conducting the business of company management, the New Company Management Rule will come into effect on 1 April 2024. For all new insurance licence applicants, the New Company Management Rule is effective immediately. The New Company Management Rule establishes minimum requirements regarding the maintenance of records to promote accessibility, retention and appropriate security.
Removal of Cayman from FATF Grey List
The Financial Action Task Force ("FATF") announced its decision to remove the Cayman Islands from the FATF Grey List on 27 October 2023. The FATF announcement confirmed that the Cayman Islands maintains a robust and effective anti-money laundering/counter terrorist financing ("AML/CFT") monitoring regime that meets global standards.
Removal from the FATF list of countries subject to increased monitoring was justified by the Cayman Islands' demonstrated adoption of effective AML/CFT monitoring measures, including enforcement actions in appropriate cases to enforce the jurisdiction's AML/CFT requirements in a timely and effective manner. Enforcement actions now include administrative penalties for proven breaches of required elements of AML/CFT monitoring as well as the imposition of sanctions to assure filing of accurate, adequate and up to date beneficial ownership information by obliged Cayman Islands entities. The demonstrated prosecution of money laundering cases with dissuasive penalties by the Cayman Islands' authorities was another key element justifying the FATF's removal decision.
Following the decision, the Cayman Islands is eligible to be removed from the European Union's enhanced AML/CFT due diligence list. This FATF decision is welcome news for all industry groups to include the (re)insurance sector and provides clear recognition of the Cayman Islands as a jurisdiction which is fully committed to implementing and maintaining international AML/CFT compliance standards
Debunking Common Cayman Clichés: Episode 2
– Confidentiality Requirements
Philippa Gilkes, Counsel
Anyone who has completed CIMA's due diligence process can attest that the stringency of the regulator's review can at times feel like everything but the kitchen sink is required to be submitted in order to be approved as a "fit and proper person".
In our last edition we discussed and debunked the perception that CIMA is a closed shop uncommunicative with other authorities which is wholly untrue, but we are also often questioned on how the openness and information sharing objectives of the Authority marry up with the right to confidentiality and privacy in respect of diligence information submitted on persons and entities involved with an application.
The good news is all due diligence information submitted to CIMA as part of an insurance licensing application will absolutely be kept confidential by the regulator. Section 50 of the Monetary Authority Act (which constituted CIMA and regulates its operations and activities) provides that unlawful disclosure of information submitted by a licensee to CIMA can attract personal liability for CIMA employees (so they are unsurprisingly very mindful of their obligations). Section 50(2) and (3) of the Monetary Authority Act does set out limited circumstances in which information may legitimately be disclosed by CIMA, however these thresholds are high.
Whilst the Freedom of Information Act of the Cayman Islands ("FOI Act") gives the public a general right of access to records held by Cayman's public authorities, a specific exclusion applies to records which contain information which may not be disclosed by CIMA under section 50 of the Monetary Authority Act. Section 50 includes information relating to any application made to CIMA or the Government under the regulatory laws (which includes the Insurance Act). To this end, we are pleased to confirm that due diligence information provided to CIMA by key persons would be subject to the FOI Act exclusion.
If this is a matter that may have been concerning you, you can rest assured that your personal information will be maintained in strict confidence by CIMA and may even in certain circumstance be shared with them directly via a secure online portal.
Converting a PIC to a Standalone Licensed
Entity
Frank Farrell, Associate
The Conyers insurance team regularly assists clients looking to convert their licensed insurer into a segregated portfolio company ("SPC") in order to separate their programs by cedents or lines of business into segregated portfolios ("SPs"), as well as the establishment of portfolio insurance companies ("PIC") into which insurance programmes originally written in SP are transferred. What is now becoming more common are PICs "cutting the cord" with their controlling relevant insurers and becoming standalone licensed entities.
Meet The Team: Spencer Vickers
Spencer Vickers is a Partner in the Cayman Islands Litigation & Restructuring practice. He is an experienced advocate and has extensive expertise advising clients on a range of insolvency, restructuring and commercial litigation matters, including disputes involving captive insurers. This includes advising on applications regarding the appointment of liquidators and/or receivers, applications regarding compulsory disclosures of information and disputes with regulators. In relation to his regulatory work, Spencer frequently advises clients in relation to CIMA Administrative Fines and Production Orders issued by law enforcement agencies.
His recent cases involving insurance captives include successfully appointing receivers to a segregated portfolio in In the matter of Performance Insurance Company SPC and successfully opposing the appointment of liquidators in In the matter of Virginia Solution SPC Ltd.
In 2022, Spencer was elected to the Board of Directors of the Recovery and Insolvency Specialists Association of the Cayman Islands (RISA). Spencer was recognised as "Highly Recommended" in the 2023 Legal 500 rankings for Dispute Resolution.
Cayman Islands Shareholder Remedies: Stays in
Favour of Arbitration
Norman Hau, Partner, Jonathon Milne, Partner, and Manwa
Yip, Associate
On 20 September 2023, the Privy Council delivered the much-anticipated judgment in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corporation [2023] UKPC 33, on appeal from the Cayman Islands Court of Appeal. The Privy Council decision provides helpful guidance on the questions of: (i) whether an arbitration agreement may prevent a party from pursuing a petition to wind up the company on the just and equitable ground; and, if so (ii) in what circumstances?
Orienteering Change: Navigating Restructuring
Under the New Cayman Islands Regime
Jordan McErlean, Senior Associate
After a substantial industry consultation process, the Cayman Islands introduced the concept of Court-appointed restructuring officers into Part V of the Cayman Islands Companies Act (the "Companies Act") with effect from 31 August 2022.
The reforms sought to improve on the existing system for restructuring companies in financial difficulty and make the process more user-friendly by allowing a company to petition for the appointment of restructuring officers. This allows companies to take advantage of an automatic moratorium from the date of filing the petition which is similar to the US Chapter 11 stay or the English administration moratorium.
Directors' Duties: The Next Chapter
Jonathon Milne, Partner and Anna Lin, Partner
Following the UK Supreme Court decision in Sequana at the end of 2022, the New Zealand Supreme Court has now weighed in on the issue of the duties owed by directors of a company in the zone of insolvency in a long-running case involving the liquidation estate of Mainzeal Property and Construction Limited.
As directors around the world grapple with difficult and uncertain times arising from various macro-economic factors, these decisions provide useful and timely guidance on the approach that directors should take to protect themselves and the companies they manage.
Welcome to New Market Entrants
With 2023 shaping up to be a record year for new CIMA licensees, we wanted to share a very warm welcome to all the new market entrants. We also wanted to put a spotlight on two Q4 entrants to the Cayman market:
The presence of alternative asset backed life & annuity reinsurers in Cayman continues to grow with Aspida establishing new reinsurer licensees in the Cayman Islands in October and December 2023. The Aspida group is backed by Ares Management Corporation, a NYSE listed and leading global alternative investment manager with approximately US$395 billion in assets under management. Aspida is focused on providing retirement and reinsurance solutions, having operations in the US and Bermuda with total assets of US$12.1 billion as of 30 September 2023.
In October, Ledger Investing licensed Ledger Re SPC as a Class B(iii) insurer. Ledger Investing is a technology company disrupting the insurance industry's financing and is backed by leading tech VCs and strategic insurtech investors. Since its incorporation in 2016, Ledger Investing has led the expansion of the Insurance Linked Securities market to non-catastrophe insurance risks, with a focus on private passenger auto, commercial auto, workers' compensation and general liability. Ledger Investing's transactions to date have largely been in the form of quota share reinsurance from US fronting insurance carriers to Bermuda-based segregated account companies, which will now be written in the new Cayman reinsurer.
Important CIRCA Updates
The Cayman International Reinsurance Companies Association ("CIRCA") was established in late 2020 with the mission of operating as "the industry group for commercial reinsurers located in the Cayman Islands, dedicated to fostering the industry through peer interaction, advocacy and education on topics impacting the regulatory and business environment."
Commensurate with the growth of the reinsurance industry in the Cayman Islands, CIRCA has recently revamped its website, revised its governance structure, and most notably, broadened its membership eligibility criteria to now permit all Cayman licensed reinsurers to join as full members, regardless of whether they have boots on the ground in Cayman. Check out the website for more details here.
CIRCA now has 18 full members and 26 associate members (including insurance managers, accounting and law firms, amongst others). Both full and associate members can nominate representatives to contribute and participate on the various committees established by CIRCA, so please get in touch with the CIRCA team if you would like to make a valuable contribution to the Cayman reinsurance industry in 2024.
Save the Date!
Most notably, we are excited to share that CIRCA will be hosting the Cayman Islands' first dedicated reinsurance conference in April 2024. Mark your calendars for April 18 and 19! More details to follow.
Thank You for Joining Us at the Cayman Captive Forum
Thank you to all those who came to say hello to our Insurance team at the Cayman Captive Forum from 28-30 November at the Ritz-Carlton Grand Cayman.
Celebrating its 30th anniversary this year, with more than 1,400 registrants, 100 speakers and 30 exhibitors, the Cayman Captive Forum is recognised as the largest captive insurance conference in the world.
Partner Derek Stenson provided a regulatory update alongside Deputy Head of CIMA's Insurance Division, George Kamau and Grant Thornton Managing Partner, Dara Keogh.
Legal 500 2024 Results: Conyers Retains Tier 1 Status
Conyers is proud to once again be the only law firm ranked Tier 1 for insurance/reinsurance in both the Cayman Islands and Bermuda in The Legal 500 2024 rankings. Partner Derek Stenson maintains his ranking as a "Leading Individual" as does Counsel Philippa Gilkes as a "Rising Star". Derek and Philippa are two of only four lawyers in the Cayman Islands to have been ranked by The Legal 500 2024 in the Insurance/Reinsurance practice area.
Captive International Cayman Awards 2023
Conyers is honoured to have received the highest award as Law Firm of the Year in the 2023 Cayman Awards by Captive International. Partner Derek Stenson was awarded Best Lawyer and Philippa Gilkes took second spot as Highly Commended.
IMAC Golf Scramble
Conyers was proud to sponsor the IMAC Educational Scholarship Fund Golf Scramble on Friday 27th October at North Sound Golf Club. All proceeds raised on the day went to the IMAC Educational Scholarship Fund, which has raised over US$5 million since its inception and supported 65 young Caymanians to pursue further studies around the globe.
Originally published December 2023.
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