Cayman Islands: The Insurance And Reinsurance Law Review, 6th Ed.:Cayman Islands

I INTRODUCTION

The insurance market in the Cayman Islands is divided into domestic business, captive insurance, special purpose vehicle (SPV) insurance and commercial reinsurance.

Domestic business is conducted primarily by companies incorporated in the Cayman Islands, although a number of approved external insurers are also permitted to write insurance (e.g., Lloyd's of London). Some external insurers have manned offices in the Cayman Islands while others operate through local agents.

Captive insurance business may be taken to be all insurance (and reinsurance) business where the premiums originate from the insurer's related business. The captive market began to develop in the late 1970s and there has been a steady natural growth since then. As of 31 December 2017, the Cayman Islands international insurance market reported total premiums of US$12.4 billion, with US$61 billion in total assets.2 The Cayman Islands is the leading jurisdiction for healthcare captives, representing almost half of all captives. Medical malpractice liability continues to be the largest primary line of business in the Cayman Islands with approximately 32 per cent of companies (re)insuring medical malpractice liability.3 The other significant class for captives is workers' compensation coverage, which is the second-largest primary line of business in the Cayman Islands with 21 per cent of companies assuming this risk.4

SPV insurance is driven principally by the insurance-linked securities market, in particular, the catastrophe bond market. Cayman is the leading market for the formation and licensing of SPV insurers.

The commercial reinsurance market is an area seeing interest and growth with a number of reinsurers setting up physical presence in the Cayman Islands.

II REGULATION

The body responsible for regulating the insurance and reinsurance business in the Cayman Islands is the Cayman Islands Monetary Authority (the Authority). The Insurance Division of the Authority discharges those responsibilities. The Authority operates independently of the government and meets international standards of supervision, accountability and transparency.

The Insurance Law was first enacted in the Cayman Islands in 1979. Since that time it has been updated periodically to ensure that the jurisdiction maintains a strong regulatory framework. At the end of 2012, the Insurance Law 2010 (as amended) (the Law) came into force, bringing a new insurance regulatory regime into effect. The new regime provides for greater regulatory transparency for existing and prospective licensees, and streamlines the regulation of licensed entities.

There are currently no proposals to achieve Solvency II equivalence for the Cayman Islands regulatory regime.

i Insurance licensing

All persons carrying on or wishing to carry on insurance business, reinsurance business, or business as an insurance agent, insurance broker, or insurance manager in or from within the Cayman Islands need to be licensed by the Authority. Insurers are licensed under one or more of the following categories:

a  Class A – for the carrying on of domestic business or limited reinsurance business as approved by the Authority;

b  Class B – for the carrying on of insurance business other than domestic business (however, a Class B insurer may carry on domestic business where such business forms less than 5 per cent of net premiums written or where the Authority has otherwise granted approval). Class B insurers are further categorised based on net premiums written, where:

  • Class B(i) – at least 95 per cent of the net premiums written will originate from the insurer's related business;5
  • Class B(ii) – over 50 per cent of the net premiums written will originate from the insurer's related business; or
  • Class B(iii) – 50 per cent or less of the net premiums written will originate from the insurer's related business;

c Class C – for the carrying on of insurance business involving the provision of reinsurance arrangements in respect of which the insurance obligations of the Class C insurer are limited in recourse to and collateralised by the Class C insurer's funding sources or the proceeds of such funding sources that include the issuance of bonds or other instruments, contracts for differences and such other funding mechanisms approved by the Authority. Typically such licensees would be 'cat-bond insurers' or ' special purpose insurers'; and

d  Class D – for the carrying on of reinsurance business and such other business as may be approved in respect of any individual licence by the Authority.

Agents, brokers and managers are required to be licensed as follows:

a insurance agent' licence, for the soliciting of domestic business on behalf of not more than one general insurer and one long-term insurer;

b insurance broker' licence, for arranging or procuring, directly or through representatives, insurance or reinsurance contacts or the continuance of such contracts on behalf of existing or prospective policyholders; and

c insurance manager' licence, for providing insurance expertise to or for Class B or Class C insurers.

ii Organisation of licensees

Except for domestic business, where external insurers are permitted, only an entity incorporated under the Companies Law (2016 Revision) of the Cayman Islands (the Companies Law) or registered by way of continuation and that has a minimum of two directors (who have been approved by the Authority to be fit and proper persons) may be granted a licence by the Authority.

An insurance broker, an insurance manager, a Class A insurer or a Class D insurer is required to have a place of business in the Cayman Islands while a Class B insurer or a Class C insurer (unless it maintains permanently a place of business approved by the Authority) is required to appoint an insurance manager in the Cayman Islands that has been licensed by the Authority and maintain, at the insurance manager's place of business (or at another location approved by the Authority), full and proper records of the business activities of the Class B insurer or Class C insurer.

Footnotes

1  John Dykstra and Abraham Thoppil are partners at Maples and Calder. The authors would like to thank Kaneesa Ebanks-Wilson for her assistance with the preparation of this chapter and Mac Imrie for his assistance with the section on dispute resolution.

2 Insurance statistics and regulated entities as maintained by the Cayman 3 Islands Monetary Authority.

3 Ibid.

4 Ibid.

5 'Related business' is defined under the Law as business that originates from the insurer's members or the members of any group with which it is related through common ownership or a common risk management plan, or as determined by the Authority.

Reproduced with permission from Law Business Research Ltd

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