Insurers formed as segregated portfolio companies (SPCs) can now look forward to enjoying the advantages of portfolio insurance companies in the Cayman Islands.
On 25 March, the Cayman Islands' Legislative Assembly passed a Bill which amends the Insurance Law (2010 Revision), to enable insurers formed as SPCs to take advantage of similar benefits as incorporated cell companies in other jurisdictions like Jersey and Guernsey.
Pursuant to the amendments, a new or existing SPC insurance company is able to incorporate one or more of its segregated portfolios by establishing a "portfolio insurance company" (PIC) under the SPC. The PIC would then undertake the relevant insurance business, which would normally be carried out by the segregated portfolio.
The PIC will not need to be separately licensed as an insurance company, and, unlike a traditional segregated portfolio, the PIC will be incorporated as a separate legal entity - i.e., an exempted company limited by shares.
The main advantages of the PIC, in comparison to a segregated portfolio of a SPC, are:
- the ability to contract with other PICs within the same SPC - which facilitates reinsurance, quota sharing and pooling (which simple segregated portfolios of SPCs presently cannot do);
- each PIC is a separate legal entity (a segregated portfolio of SPC is not) with its own board of directors which permits governance flexibility and there is less risk of comingling assets;
- for parties unfamiliar with segregated portfolios, a PIC may be more readily accepted; and
- a single PIC can be wound up with no effect on its controlling SPC or other PICs.
The Cayman Islands Government, taking advice from the Financial Services Legislative Committee and the Insurance Managers Association of Cayman, proposed this legislative model because it will operate easily within fundamental and well-established principles of corporate law.
The PIC entity will increase the competiveness of Cayman and this legislation is a welcome addition to the thriving Cayman insurance industry.
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