Cayman Islands: Insurance

Last Updated: 24 March 2006

Introduction

The Insurance Law of 1979 laid the foundation for the Cayman Islands to become one of the world's largest captive insurance centres. Licensees are regulated by the Cayman Islands Monetary Authority ("the Authority"). All applications for licenses must be submitted to that authority and it is on the Authority's recommendation that approval is given or denied by the Governor in Council. The Authority is staffed by highly qualified personnel and is charged not only with dealing with license applications but with monitoring the operations of all licensees. The Authority maintains close contact with international regulatory bodies in various parts of the world including the National Association of Insurance Commissioners and is constantly monitoring the operation of companies in the Cayman Islands to ensure that acceptable international standards are maintained.

Categories of Licenses

Before carrying on insurance business in or from the Islands, one of the following licenses must be obtained:

1) Class 'A' Insurers License
2) Unrestricted Class 'B' Insurers License
3) Restricted Class 'B' Insurers License
4) Insurance Agents License
5) Insurance Brokers License
6) Insurance Sub-agents License
7) Insurance Managers License
8) Principal's Representative (Insurance) License

The various types of license regulate the type of business which may be written by a licensee, its net worth requirements and reporting requirements. The law has comprehensive provisions which regulate who may be accepted as actuaries and auditors, the type of business (for example long term, general or domestic), net worth requirements and the financial year.

Types of Business which may be written by Licensees

1). A Class 'A' Insurers License permits a company incorporated in the Island or an approved external insurer to carry on business generally. External insurers are defined as insurers having their principal or registered office outside the Islands where legislation for the regulation and supervision of insurers has been ascertained by the Governor to be acceptable.

2). An Unrestricted Class 'B' Insurers License permits an "exempted insurer" to carry on business other than domestic business within the Islands.

3). A Restricted Class 'B' License permits an "exempted insurer" to accept insurance business other than domestic business from its members or such other person as may be specifically approved by the Governor.

An exempted insurer is a company incorporated in the Cayman Islands as an exempted company or an ordinary nonjresident company or an insurer which is constituted through a partnership or other acceptable mutual association by one or more members having a common trade, profession or special interest.

Class 'B' licenses have been specially created for the carrying on of captive business.

Capital Requirements

Minimum net worth requirements vary between US$120,000.00 and US$360,000.00 for 'B' Unrestricted licenses. The amount of this requirement is dependent on the type of business being written, i.e. general and/or life. There are no minimum requirements for Restricted 'B' licenses, but the Authority determines adequate minimum net worth using the projections set out in the applicant's business plan. A ratio of five to one between premium income and capital is generally the norm.

Application Procedure

Applications are made to the Authority on prescribed forms which in general terms require the following information:

(1) Name or proposed name of the applicant.
The Authority checks the name in order to ensure that there is no confusion arising from its use. The Law makes provision for revocation of the license of any licensee which has a name which is closely associated with the name of any other person or company writing insurance business whether within or outside the Islands.

(2) Local Address.
The address of the designated office in the Cayman Islands where all records will be kept. Where an agent or service company is to be employed, details of that company including evidence of its agreement to provide the necessary service is required.

(3) Service of Process.
The name of a person resident in the Cayman Islands authorized to accept notices and service of process in legal proceedings.

(4) Ownership and Control.
The names, addresses and nationalities of the directors, managers and officers with sufficient evidence that they have insurance experience and no criminal record, and also of the shareholders.

(5) Corporate Documentation.
A full set of properly certified corporate documentation in respect of companies incorporated outside the Islands. For applicants that are existing insurers, audited accounts for at least three years are required.

(6) Business Plan.
This plan is an essential element of an application and should give as much information as possible including projections over a three year period. The plan must state the method of capitalization, the classes of business to be written, premium volumes, the proportion of business to be reinsured, the nature of the reinsurance program, the name of the reinsurers, any reinsurance treaties that may exist, the amount of net premiums retained, the maximum liability in respect of any risk and catastrophe and investment and dividend policy. All licensees other than approved external insurers are permitted to carry on business in accordance with the information submitted and any proposed changes must receive prior approval.

(7) Annual Reporting.
All licensed insurers are required to make annual reports to the Authority within six months of the end of the financial year. These reports must set out adequately the volume of business that the company has undertaken during the last year and its financial position. A certificate of compliance in a prescribed form signed by an independent auditor or licensed manager must be submitted annually. The information required in the reports is set out in the Law and varies between the different categories of license.

(8) Auditing Requirements and Returns.
The Law requires that every licensed insurer other than an approved external insurer must appoint an independent auditor. The independent auditor audits the insurer's annual financial statements which are prepared in accordance with generally accepted accounting principles. Comprehensive returns are required from all categories of licensee.

(9) Powers and duties of the Authority.
The Authority has full powers detailed in the Law to regulate licensees, examine books and records, set out and alter capital and liquidity margins and ratios, and to recommend revocation or suspension of a license to ensure that the public is fully protected.

Uses of Captives

Captives are used for a number of insurance purposes such as:-

Medical Malpractice
Worker's Compensation
Property
General Liability
Accident and Health
Professional Liability
(other than Medical Malpractice)
Credit Life
Life
Marine and Aviation
Surety Bonds
Automobile
Products Liability
Deferred Variable
Annuities
Insurance Managers

All captive insurers licensed to do business in the Cayman Islands must appoint an insurance manager who is defined in the law as a person operating in or from within the Islands acting as a manager or consultant (but not a bona fide employee) and who provides underwriting and insurance expertise for insurers. All insurance managers must be licensed and within six months of the end of each financial year must submit a variety of information to the Authority including a list of all insurers for whom they act.

An insurance manager is required by the law to use his best efforts to carry on insurance and reinsurance business only with insurers of sound reputation. If a manager has cause for concern regarding the integrity or soundness of an insurer, he must report the fact immediately to the Authority.

Preservation of Confidentiality

Specific provisions in the Insurance Law prohibit the Authority and any person acting under its authority from disclosing any information relating to any application or the affairs of any licensee or of any policyholder of a licensee unless required to do so for the purposes of performing his duties under the Law or when lawfully required to do so by any court of competent jurisdiction within the Islands. After discussions with the financial industry, Government is expected in the near future to introduce legislation to modify these provisions so as to allow the Authority to disclose information to foreign regulators where there exists a reasonable certainty that wrongdoing has taken place. There will be safeguards. The Authority will be able to make disclosure where

(a) it is satisfied that the recipient is subject to restrictions on further disclosure, and

(b) the disclosure relates only to the policy holder who is the subject of the enquiry.

It will also be permitted to disclose information concerning the dissolution of an insurer or the appointment of a liquidator or receiver.

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.

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