1 Legal framework
1.1 Which legislative and regulatory provisions govern the insurance sector in your jurisdiction?
The insurance sector in the Cayman Islands is primarily governed by the Insurance Act, 2010 and associated regulations; together with the rules, statements of guidance, regulatory policies and procedures issued from time to time by the regulator, the Cayman Islands Monetary Authority (CIMA).
Insurers, insurance managers, insurance agents and insurance brokers are also subject to other applicable regulatory laws, such as:
- the Anti-Money Laundering Regulations (as amended) (‘AML Regulations');
- the Data Protection Act, 2017; and
- those laws referred to in question 1.2.
1.2 Which bilateral and multilateral instruments on insurance have effect in your jurisdiction?
The Cayman Islands – and specifically CIMA – is a member of the International Association of Insurance Supervisors (IAIS) and acknowledges and observes the IAIS Insurance Core Principles for supervisors; and is also a signatory authority to the IAIS Multilateral Memorandum of Understanding on Cooperation and Information Exchange. The objective of this memorandum is to establish a formal basis for cooperation and information exchange between the signatory authorities regarding the supervision of insurance companies where cross-border aspects arise.
In addition, CIMA has entered into a number of bilateral agreements with regulatory supervisors which would encompass arrangements for the insurance sector.
The Cayman Islands has also implemented frameworks for the international cooperation in tax matters which have an effect on the insurance sector in the Cayman Islands. These include implementation of the US Foreign Account Tax Compliance Act (FATCA) and the Organisation for Economic Co-operation and Development's (OECD) Common Reporting Standard (CRS), pursuant to which certain insurers writing cash value insurance or annuity contracts are regarded as financial institutions, with resulting reporting and other obligations.
The Cayman Islands is also a member of the OECD's Inclusive Framework on Base Erosion and Profit Shifting (BEPS), and has implemented BEPS Action 13 – namely country-by-country reporting – in the Cayman Islands in the form of the Tax Information Authority (International Tax Compliance) (Country-by-Country Reporting) Regulations, 2017.
As part of its BEPS compliance, the Cayman Islands has introduced the International Tax Co-operation (Economic Substance) Act (as amended) (‘ES Act') in response to requirements for geographically mobile activities to have economic substance. Under the ES Act, since 1 July 2019, a ‘relevant entity' that is carrying on ‘insurance business' must maintain economic substance in the Cayman Islands and file annual notifications and reports.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
CIMA regulates the insurance sector in accordance with the legislation and regulatory measures referred to in question 1.1 The policies and procedures to be followed by CIMA itself in performing its regulatory functions are set out in its regulatory handbook. CIMA is also the supervisory authority responsible for compliance with the AML Regulations.
CIMA's duties under the Insurance Act include:
- maintaining a general review of the insurance sector;
- examining the affairs of any insurance licensee from time to time, to ensure compliance with applicable legislation; and
- processing licence and other applications.
CIMA has broad supervisory and enforcement powers. These include the power to:
- conduct onsite inspections;
- access the books and records of any licensee;
- issue directions to licensees;
- suspend or revoke a licence, and impose licence conditions;
- remove or substitute any director, manager or officer of the licensee;
- appoint an adviser or controller at the licensee's expense to examine or take over the licensee's affairs;
- apply to the Grand Court of Cayman Islands to wind up or dissolve an entity; or
- issue administrative fines for breaches.
The Department for International Tax Cooperation (DITC) is responsible for administering and enforcing FATCA, the CRS, country-by-country reporting and the ES Act, and for carrying out the functions of the Tax Information Authority, as the relevant competent authority for these frameworks. The DITC also has broad powers to enforce compliance with these regulatory requirements.
1.4 What is the regulators' general approach in regulating the insurance sector?
CIMA's overall objective is to protect and enhance the integrity of the Cayman financial services industry. In performing its regulatory functions, CIMA balances a number of objectives, including the following:
- to act in the best economic interests of the Cayman Islands;
- to promote and maintain a sound financial system in the Cayman Islands;
- to have regard to generally accepted principles of good corporate governance;
- to promote and enhance market confidence, consumer protection and the reputation of the Cayman Islands as a financial centre;
- to reduce the possibility for the use of financial services business for money laundering or other crime;
- to recognise the international character of financial services and markets, and the need to be competitive for consumers and suppliers while complying with appropriate and relevant international standards;
- to recognise the principle that a burden or restriction that is imposed should be proportionate to its expected benefits;
- to recognise the desirability of facilitating innovation in financial services business; and
- to be transparent and fair.
CIMA adopts a risk-based approach to regulating the insurance sector in Cayman Islands. The Cayman Islands' supervisory and legislative framework adopts international standards, but also has inbuilt flexibility to enable CIMA and licensees to apply requirements according to the nature, size and risk profile of licensees. For example, the Cayman Islands has elected not to seek Solvency II equivalency, which gives CIMA discretion to apply risk-based prudential standards, thus allowing insurers and reinsurers to implement their own internal regulatory capital model and structure their capital efficiently according to their risk profile.
2 Insurance contracts
2.1 What are the main types of insurance available in your jurisdiction?
The primary classes of insurance and reinsurance available in the Cayman Islands consist of the following:
- General insurance:
- motor property damage and liability;
- general liability;
- hospital professional liability and physicians' liability;
- marine and aviation;
- medical malpractice liability;
- product liability;
- professional liability;
- surety bonds; and
- worker's compensation.
- Long-term insurance:
- accident and health; and
- deferred variable annuities.
The Cayman Islands is the leading jurisdiction for healthcare captives, representing almost one-third of all captives. As at 30 June 2021, medical malpractice liability was the largest primary line of business, with approximately 24% companies (re)insuring these risks; followed by worker's compensation, with 22% of companies assuming this risk.
2.2 Are all insurance contracts regulated? What terms do they typically include?
The Insurance Act regulates the carrying on of insurance business and reinsurance business in or from within the Cayman Islands. The term ‘insurance business' means "the business of accepting risks by effecting or carrying out contracts of insurance, whether directly or indirectly, and includes run-off business including the settlement of claims". The term ‘reinsurance business' means "the business of accepting risks by effecting or carrying one or more contracts of reinsurance whether directly or indirectly, and includes run-off business including the settlement of claims". ‘Contract of insurance' is not defined in the Insurance Act; but a ‘contract' includes a ‘policy'. Under the Insurance Act, a person can be licensed to provide general business or long-term business.
The terms of insurance or reinsurance contracts are not prescribed by Cayman Islands law and will vary depending on the type of insurance, the risks and the providers or counterparties involved.
2.3 What are the formal and documentary requirements for conclusion of an insurance contract?
Consistent with English common law, contracts under Cayman Islands law need not be in writing. In practice, policies are issued in writing and, for the purposes of regulatory policy, documentation must be available for inspection by the Cayman Islands Monetary Authority and meet certain requirements. There is no statutory requirement for insurable interest in Cayman Islands law, although English common law may be taken to imply a requirement for insurance interest in all types of indemnity insurance.
2.4 What are the procedural requirements for conclusion of an insurance contract?
These will be governed by the governing law of the insurance contract. Under Cayman Islands law, there must be an offer and acceptance to form a contract. The offer is usually made in a proposal form or otherwise in a document where the policyholder discloses all material matters and information that would influence the insurer in deciding whether to insure the risk. Similarly, before or at the time of concluding the contract, the customer must be provided with a range of prescribed written information, including in relation to the insurer, any intermediaries, the product and the claim and complaints procedures. In addition, certain commissions and any conflicts of interest must be disclosed. If terms of the insurance contract are mutually agreed, the contract must be signed by the parties and the relevant consideration or premium paid.
2.5 What are the respective obligations and liabilities of insurer and insured, both on concluding an insurance contract and during its term? What are the consequences of any breach?
Contracts of insurance are based upon the principle of utmost good faith, and the general principles of English insurance common law regarding non-disclosure and misrepresentation have been followed in the Cayman Islands. Thus, each contracting party is obliged to disclose all circumstances material to the risk to the other contracting party.
An insured will therefore generally be under a positive duty to disclose to the insurer all circumstances material to the risk to be insured regardless of whether the insurer has specifically asked about those matters. Circumstances are ‘material' for these purposes if they would influence the judgement of a prudent insurer in determining the premium or deciding whether to insure the risk at all. Any failure to make such disclosure could provide grounds for the insurer to void the contract.
The insurer may have the right to rescind the contract where the insured:
- has entered into a contract of insurance in reliance of a misrepresentation by the insured; or
- has failed to disclose a material fact that, if disclosed, would have led the insurer to enter into the contract upon different terms or not to enter into the contract at all.
The insurer may also have a claim for damages against the insured where it has suffered loss due to misrepresentation or non-disclosure by the insured.
3 Making a claim
3.1 What are the formal and documentary requirements for making a claim?
There are no formal requirements under Cayman Islands law for making a claim. Any such requirements will be dictated by the terms of the relevant insurance contract. The contract will generally stipulate the times limits within which to notify and/or make a claim, and how to make the claim, including the information and supporting documents that must be provided.
3.2 What are the procedural requirements for making a claim?
There are no procedural requirements under Cayman Islands law for making a claim. Any such requirements will be dictated by the terms of the relevant insurance contract.
3.3 On what grounds can the claim be denied? How can the insured challenge the denial of claim?
This will be determined by the terms of the relevant insurance contract. Depending on the terms of the insurance contract and how those terms are interpreted, the claim can be denied on various grounds – for example, if:
- an exclusion applies;
- there is a breach of a policy condition or term;
- the policy limit has been exceeded; or
- the insurance contract was voided for failure to disclose a material fact or rescinded for pre-contractual misrepresentation made by the insured.
Insurance contracts are subject to the same approach to construction and interpretation as other contracts, save where a term already has a settled judicially accepted meaning. The courts of the Cayman Islands have given specific guidance on certain matters relating to insurance contracts, including:
- how ambiguities in insurance policies are to be construed;
- the duty of the parties to an insurance contract to disclose any material information voluntarily before entering into the insurance contract, the standard of that duty and how the materiality of the information is assessed; and
- the importance of compliance with widely recognised insurance industry standards and the consequences of non-compliance.
A denial of claim can be challenged by the insured through either an informal complaint or a formal legal action against the insurer. The mechanism for dispute resolution will be determined by the applicable terms of the insurance or reinsurance contract and whether the contract relates to foreign or domestic insurance business. However, where a dispute arises in connection with a contract of domestic insurance business and there is no valid arbitration agreement in place between the parties, they must agree to the appointment of one arbitrator for the adjudication of the dispute. Where the parties are unable to agree on a choice of arbitrator, the Cayman Islands Monetary Authority will appoint an arbitrator on the parties' behalf, who will conduct the arbitration pursuant to the Arbitration Act, 2012.
3.4 How can third parties make a claim?
For insurance and reinsurance contracts governed by Cayman Islands law, a third party may enforce a term of a contract in its own right pursuant to the Contracts (Rights for Third Parties) Act, 2014 (‘Third Parties Act') if:
- it is expressly identified in the contract by name, as a member of a class or as answering a particular description, which includes a person nominated or otherwise identified pursuant to the terms of the contract (although the third party need not be in existence when the contract is entered into); and
- the contract expressly provides in writing that it may.
If a third party is to be granted rights under a contract, the parties to that contract should remember to consider such third-party rights if they wish to rescind or amend the contract (unless an express term in the contract provides that the contract may be rescinded or varied without the consent of the third party).
Any third party granted rights under a contract pursuant to the Third Parties Act will have any remedy that would have been available to it for breach of contract if the third party had been a party to the contract. If a contractual term excludes or limits liability in relation to any matter, the relevant exclusion or limitation of liability will also apply to the third party.
4 Form and structure of insurers
4.1 What types of insurance companies are typically found in your jurisdiction?
The Cayman Islands market comprise mainly domestic insurers writing domestic business and insurers and reinsurers carrying on international or non-domestic insurance. As set out in further detail in question 5:
- domestic insurers offer insurance to Cayman Islands residents and conduct business under a Class A licence;
- captive insurers provide non-domestic insurance where net written premiums originate from the insurer's related or unrelated business under a class B licence;
- special purpose vehicles such as issuers of insurance linked securities, catastrophe bonds and other similar structures insure or reinsure non-domestic risks under a class C licence; and
- reinsurers offer reinsurance for domestic or foreign risks under a class D licence.
4.2 How are these insurance companies typically structured and funded?
Insurers in Cayman Islands are generally Cayman Islands incorporated companies or exempted companies, segregated portfolio companies (SPCs) or portfolio insurance companies (PICs).
Only a person incorporated under the Companies Act (as amended) may be a ‘local' class A insurer or a class D insurer. However, it is also possible to be licensed as an ‘external' class A insurer – meaning an insurer that is not a local class A insurer and whose principal or registered office is in a jurisdiction outside the Cayman Islands where the legislation for the regulation and supervision of insurers is acceptable to the Cayman Islands Monetary Authority (CIMA). A class A insurer or a class D insurer must have a place of business in the Cayman Islands. This means maintaining a physical presence in the Cayman Islands – such as resources including staff and facilities, books and records – which CIMA may consider appropriate having regard to the nature and scale of the business.
Only a person incorporated as an exempted company under the Companies Act and that has at least two directors may be licensed as a class B or class C insurer. An exempted company is one whose founding shareholder has signed a declaration that it will carry on business mainly outside the Cayman Islands. A class B or class C insurer, unless it permanently maintains a place of business in the Cayman Islands approved by CIMA, must appoint an insurance manager and maintain, at the insurance manager's place of business or at another location approved by CIMA, full and proper records of the class B or class C insurer.
The Insurance Act and regulations allow licensed insurers and reinsurers to be incorporated as, or converted to, SPCs or PICs. An SPC is a single legal entity divided into an unlimited number of portfolios or cells whose assets and liabilities are legally segregated from each other. An SPC can incorporate its separate cells or segregated portfolios as PICs. A PIC is a separately incorporated Cayman Islands exempted company and will be a subsidiary of its controlling SPC. The shares of the PIC are held by a particular cell or segregated portfolio of the controlling SPC and are thus attributable to that cell. A PIC of a licensed SPC may write insurance business without the need for a separate insurance licence. PICs have the express power to contract with the parent SPC, any segregated portfolio of the parent SPC and any other PIC related to the parent SPC. Each PIC is a separate legal entity from the SPC and any other PIC.
Insurers are generally funded by the premiums paid to insure the risk together with any investment income generated by maintaining reserves in the event of a claim. Insurers may also be funded by their direct, indirect or ultimate owners or controllers or affiliates which are part of a larger insurance group.
4.3 Are there any restrictions on foreign ownership of insurance companies?
No. However, shares totalling more than 10% of the authorised share capital of the licensed insurer must not be issued; and issued shares totalling more than 10% of the issued share capital or total voting rights of an insurer licensed under the Insurance Act must not be transferred or disposed of in any manner without CIMA's prior approval.
5.1 What authorisations are required to provide insurance services in your jurisdiction? What activities do they cover?
A person carrying on insurance business, reinsurance business or business as an insurance agent, insurance broker or insurance manager in or from within the Cayman Islands must apply to the Cayman Islands Monetary Authority (CIMA) for a licence under one or more of the following categories:
- a class A insurer licence for the carrying on of domestic insurance business by a local insurer or external insurer, or limited reinsurance business as approved by CIMA;
- a class B insurer licence for the carrying on of non-domestic insurance business in respect of which:
- at least 95% of the net premiums written originates from the insurer's related business;
- over 50% of the net premiums written originates from the insurer's related business; or
- 50% or less of the net premiums written originates from the insurer's related business;
- a class C insurer licence for the carrying on of non-domestic 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, which include the issuance of bonds or other instruments, contracts for differences and such other funding mechanisms approved by CIMA;
- a class D insurer licence for the carrying on of reinsurance business and such other business as may be approved in respect of any individual licence by CIMA;
- an insurance agent licence for the soliciting of domestic business on behalf of not more than one general insurer and one long-term insurer;
- an insurance broker licence for the arrangement or procurement, directly or through representatives, of insurance or reinsurance contracts or the continuance of such contracts on behalf of existing or prospective policyholders; or
- an insurance manager licence for the provision of insurance expertise to, or for, class B insurers or class C insurers.
An insurer must be separately licensed for long-term business and for general business, unless it is a class D insurer or a class B insurer incorporated as an SPC.
5.2 What requirements must be satisfied to obtain authorisation?
An application for a licence under the Insurance Act must be made to CIMA using the relevant prescribed form together with all supporting information and documentation, including:
- a comprehensive three-year business plan, which must cover all relevant aspects of the proposed business;
- details of the applicant's management, including directors, officers or managers;
- details of all shareholders, including ultimate beneficial ownership for entity applicants and the chain of connection, and any shareholder – whether a body corporate or an individual – holding more than 10% of the company's issued capital or total voting rights;
- completed personal questionnaires and supporting documents relating to the ‘fit and proper' standing of an individual, including:
- an affidavit in relation to criminal convictions;
- character and financial references;
- a certified copy of passport/driver's licence; and
- the CV
- of each director, officer or manager, and each individual shareholder, controller or beneficial owner, to demonstrate that such persons are fit and proper to perform these functions;
- confirmation of how the applicant will comply with the relevant prescribed capital and solvency requirements based on the category of licence; and
- details of the appointment of certain service providers such as the applicant's money laundering reporting officer, deputy money laundering reporting officer and anti-money laundering compliance officer.
5.3 What is the procedure for obtaining authorisation? How long does this typically take?
The prescribed form must be completed and submitted together with the required supporting documentation as mentioned in question 5.2, and the application fee. CIMA retains broad discretion to request any further information it may deem appropriate in the circumstances. Generally, a decision on the licence application will be granted by CIMA within six to eight weeks of submission of a comprehensive application.
6 Regulatory capital and liquidity
6.1 What minimum capital requirements apply to insurance companies in your jurisdiction?
As set out in the regulations to the Insurance Act, Cayman Islands domiciled insurers are subject to a minimum capital requirement (MCR) and a prescribed capital requirement (PCR), which vary depending on the category of licence and whether the insurer is writing long-term business, general business or both.
The MCR and PCRs for class B, class C and class D insurers writing general (non-life) business are set out in the table below.
|Class of Insurance||MCR||PCR|
|Class B(i)||US$100,000||PCR = MCR|
10% of net earned premium (NEP) to the first US$5 million
5% of additional NEP up to US$20 million
2.5% of additional NEP in excess of US$20 million
15% of NEP to first US$5 million
7.5% of additional NEP up to US$20 million
5% of additional NEP in excess of US$20 million
|Class C||US$500||PCR = MCR|
|Class D||US$50 million||Further details are on the Cayman Islands Monetary Authority (CIMA) website at www.cima.ky/insurance-licensing-requirements.|
Class B(iii) and class D insurers can use their own internal capital model as an alternative, provided that this is approved by CIMA prior to use.
CIMA reserves the power to prescribe a higher level of capital based on risk factors specific to the applicant/insurer and can exclude from the calculations assets that it deems inappropriate.
6.2 What liquidity requirements apply to insurance companies in your jurisdiction?
Unless otherwise approved by CIMA, class B, C and D insurers must maintain the prescribed margin of solvency equal to or in excess of their PCR.
7 Supervision of insurance groups
7.1 What requirements apply with regard to the supervision of insurance groups in your jurisdiction?
The Cayman Islands Monetary Authority (CIMA) will not grant a licence under the Insurance Act if the applicant's insurance group structure hinders effective consolidated supervision. In its Regulatory Policy on Consolidation Supervision, CIMA sets out its requirements for effective consolidated supervision of insurance groups, which include licensees depending on whether CIMA is the ‘host regulator' (when the licensee is a subsidiary or branch of foreign regulated entity) or the ‘home regulator' (where the licensee's group is based in Cayman Islands and the group is not subject to consolidated supervision by another regulator).
As the host regulator, CIMA will verify whether the licensee's home supervisor conducts consolidated supervision of the entire group in accordance with internationally recognised standards such as:
- the Basel Core Principles;
- the International Association of Insurance Supervisors Core Principles;
- the Core Principles of the International Organisation of Securities Commissions; or
- any other international standard considered appropriate by CIMA.
Specifically, the home country supervisor should:
- receive consolidated financial and prudential information about the group's global operations; and
- have the capability to prevent affiliations that undermine consolidated supervision and the creation of establishments in particular jurisdictions.
In addition, CIMA will not grant a licence to a branch or subsidiary of a foreign regulated entity unless the home supervisor has confirmed the following:
- There is no objection to the establishment of a branch or subsidiary in the Cayman Islands;
- There are no regulatory concerns for the parent entity or its management; and
- The branch or subsidiary will be included in the consolidated supervision of the parent entity.
As the home regulator of a licensee, CIMA will supervise the licensee as part of the insurance group on a consolidated basis in accordance with international standards, as previously described. CIMA assesses risks posed to the licensee by activities of other group members, taking into account:
- quantitative measures such as financial condition; and
- qualitative measures such as risk management, internal controls and corporate governance.
It may request information or conduct onsite inspections of affiliated entities where necessary.
A licensee that is a member of an insurance group has a general obligation to inform CIMA of any activity or transaction undertaken or proposed by another member of the group that could reasonably be expected to have a material effect on the insurer.
8 Reporting, governance and risk management
8.1 What key disclosure requirements apply to insurance companies in your jurisdiction?
Subject to a waiver from the Cayman Islands Monetary Authority (CIMA), the annual audited financial statements of insurers must be prepared and submitted in accordance with internationally recognised accounting standards by an independent auditor approved by CIMA. It is normally required that local auditors be appointed. Class A and class D insurers must publish their audited financial statements no later than the date they are submitted to CIMA. Class B(iii) and class B(iv) insurers must make their audited financial statements available, on request, to insured persons, third-party beneficiaries and any other prescribed persons.
In addition, CIMA must be notified of, and prior written approval from CIMA is required for:
- any changes to a licensee's business plan or other information submitted in its licence application;
- any change in control (although only notification is required if the shares of the licensee or its parent body are publicly traded on a stock exchange recognised by CIMA);
- the opening outside the Cayman Islands of a subsidiary, branch, agency or representative office, or a change in name; or
- the amalgamation of a domestic insurer that conducts general business with any one or more insurers or, other than in the normal course of business, the transfer of its insurance operations or any part thereof; or the acceptance of the transfer of the insurance operations, or any part thereof, from another insurer.
8.2 What key reporting requirements apply to insurance companies in your jurisdiction?
CIMA requires an insurance licensee to submit annual audited financial statements together with certain regulatory returns by way of an annual return within six months of the end of the insurer's financial year. The annual reporting requirements in the annual return of a licensee vary depending on the type of licence that it holds.
8.3 What key governance requirements apply to insurance companies in your jurisdiction?
An insurer licensee has an ongoing obligation to maintain an effective system of governance as approved by CIMA. CIMA's minimum expectations of a licensee's corporate governance arrangements are set out in CIMA's Rule and Statement of Guidance on Corporate Governance. Key requirements include the need for a corporate governance structure framework that:
- is commensurate with the size, nature and complexity of the insurer's business;
- provides for sound and prudential management and oversight of the insurer's business; and
- adequately recognises and protects the interests of policyholders.
At a minimum, the framework must address:
- the objectives and strategies of the insurer;
- the appropriate allocation of oversight and management responsibilities;
- the structure and governance of the governing body;
- independence and objectivity;
- the collective duties of the governing body;
- the duties of individual members of the governing body;
- appointments to the governing body;
- conflicts of interest;
- risk management and internal control systems (see question 8.4);
- remuneration policy and practices;
- reliable and transparent financial reporting;
- transparency and communications; and
- the duties of senior management.
8.4 What key risk management requirements apply to insurance companies in your jurisdiction?
Licensees are subject to ongoing conduct of business requirements, including in relation to:
- corporate governance (see question 8.3);
- internal controls;
- record keeping;
- cybersecurity (see question 12.2);
- market conduct;
- reinsurance arrangements; and
- business continuity.
Ongoing prudential requirements include capital adequacy, and asset management and investment and risk management. All licensees must have in place compliance and procedural manuals and internal controls to ensure effective management and compliance. All of these requirements are set out in CIMA's relevant regulatory measures for the insurance sector.
9 Senior management
9.1 What requirements apply with regard to the management structure of insurance companies in your jurisdiction?
All licensed insurers (except for external insurers carrying on domestic business) must have least two directors who are ‘fit and proper' to perform that function as approved by the Cayman Islands Monetary Authority (CIMA).
9.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?
Directors and senior executives are generally appointed and removed by the board or shareholders of the company. However, CIMA must also approve directors, managers and officers who apply to perform a controlled function by assessing whether they are ‘fit and proper' to perform such functions. In determining whether a person is fit and proper, CIMA will have regard to:
- that person's:
- honesty, integrity and reputation;
- competence and capability; and
- financial soundness; and
- the business to which the application relates.
Persons approved by CIMA are expected to remain fit and proper both initially and on a continuing basis. Failure to satisfy CIMA that such persons are fit and proper may result in the licensee being unable to appoint or continue to appoint the person to perform a controlled function.
9.3 What are the legal duties of directors and senior executives of insurance companies?
Directors of insurance companies incorporated in the Cayman Islands have statutory duties as set out in the Companies Act. They include the following:
- to maintain various registers, such as a register of members and a register of directors and officers; and
- to maintain proper books of account and ensure that the insurer complies with all reporting requirements, such as filing annual returns and notifying the Registrar of Companies of certain matters (eg, a change in directors or a change in registered office).
The powers of directors are also set out in the insurer's constitutional documents, such as the memorandum and the articles of association.
Additionally, the directors owe fiduciary duties to the insurance company under common law, which include the following:
- to act, in good faith, in what they genuinely consider to be the best interests of the company;
- to exercise their powers for the purposes for which they have been conferred;
- to avoid conflicts of interests or, where conflicts are permitted, to ensure that any conflicts are properly disclosed;
- to exercise their powers and judgement independently;
- not to misuse or misappropriate company property;
- not to make secret profits from their position as a director; and
- to act with skill, care and diligence.
Furthermore, directors and senior officers must be vigilant in ensuring that the insurer complies with its obligations under the Insurance Act and regulations. This is because senior officers may be individually accountable or liable for Insurance Act offences committed by insurers where it is proved that the offence was committed with the consent or connivance of, or is attributable to the neglect of, any senior officer.
9.4 How is executive compensation regulated in your jurisdiction?
CIMA's Rule and Statement of Guidance on Corporate Governance requires licensees to:
- have in place a documented remuneration policy for directors and senior management; and
- review that policy periodically to ensure the remuneration system, incentives and performance standards are consistent with the licensee's risk appetite, strategy and financial soundness.
10 Change of control and transfers of insurance companies
10.1 How are the assets and liabilities of insurance companies typically transferred in your jurisdiction?
There are generally two ways in which this happens:
- The assets and liabilities themselves are transferred; or
- The entity or entities holding the relevant assets and liabilities are directly or indirectly acquired or transferred.
10.2 What requirements must be met in the event of a change of control?
The licensee must:
- submit an application to the Cayman Islands Monetary Authority (CIMA) for approval of a change of control; and
- provide such information to CIMA as it may require for the purpose of assessing whether the change of control can be approved.
In all cases, the general conditions or criteria for approval are as follows:
- The proposed share transfer does not pose an undue risk to the public interest, the financial system or the reputation of the jurisdiction;
- The proposed share transfer will not prejudice the interests of depositors, policyholders, investors, clients or creditors, as the case may be;
- The new corporate structure is transparent and does not hinder effective supervision by CIMA. CIMA must be able to identify the beneficial owner(s) of the regulated entity. If a regulated entity's proposed corporate structure is complex, the entity must explain and justify the rationale for its complex structure to the satisfaction of CIMA;
- Where the proposed shareholder acquires 10% or more of the shares of the licensee, the proposed shareholder has the necessary resources to provide ongoing financial support to the licensee;
- Corporate affiliations or structures do not expose the regulated entity to undue risk;
- Cross-border operations will not hinder effective consolidated supervision by CIMA; and
- Where the licensee's direction and/or management changes as a result of the share transfer, the transferee has sufficient expertise to carry on the business of the licensee or demonstrates that the business of the licensee will be carried on by persons who have sufficient expertise and who are fit and proper persons to carry on such business.
In cases where the proposed shareholder is itself a person, or is ultimately owned by persons, based in countries with which CIMA does not have a framework for anti-money laundering and counter-terrorism financing that is at least equivalent to the standards that apply in the Cayman Islands, the application may be subject to heightened scrutiny.
CIMA may apply additional considerations or criteria where the issuance of shares does not result in the acquisition of ownership or control, or at CIMA's discretion.
11 Consumer protection
11.1 What requirements must insurance companies comply with to protect consumers in your jurisdiction?
No additional requirements are imposed on insurers to protect consumers in the Cayman Islands.
11.2 What other measures has the state implemented to protect consumers in the insurance sector?
No additional measures are implemented in the Cayman Islands specifically for consumers in the insurance sector.
12 Data security and cybersecurity
12.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for insurance companies?
The Cayman Islands Data Protection Act (DPA) applies to the processing of personal data of Cayman Islands individuals. This imposes obligations and standards on an insurer to process, manage and protect personal data in accordance with the DPA. There are no specific implications for insurance companies under the DPA. However, the Data Protection Ombudsman Guide states that providers of regulated professional services, such as insurance, are more likely to act as data controllers for the purposes of the DPA.
12.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for insurance companies?
In May 2020, the Cayman Islands Monetary Authority issued the Rule and Statement of Guidance on Cybersecurity for Regulated Entities, which applies to all regulated entities – including those under the Insurance Act. This requires licensees to establish, implement, maintain and document a cybersecurity framework and other minimum cybersecurity measures to appropriately identify, protect, detect, respond to and recover from cybersecurity-related threats, incidents and breaches.
Regulated entities such as class B and C licensees that are fully managed by a licensed insurance manager are not required to develop their own cybersecurity framework, but may rely on the framework of their insurance manager/service provider. Such regulated entities must make appropriate enquiries, through their governing body, to satisfy themselves with the level of cybersecurity applied by that service provider. However, these regulated entities:
- are ultimately responsible for their cybersecurity and for assessing the service provider's compliance with the cybersecurity regime; and
- must satisfy themselves that the cybersecurity framework that will be applied in respect of the services provided to them is appropriate for the cybersecurity risks posed to them as a result of the use of technology and emerging cybersecurity threats.
13 Financial crime
13.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for insurance companies?
The primary legislation is the Proceeds of Crime Act (POCA), together with the regulations and laws made under the POCA, such as:
- the Anti-Money Laundering Regulations (‘AML Regulations');
- the Terrorism Act; and
- the Proliferation Financing (Prohibition) Act (‘PF Act').
In addition, the Cayman Islands has a sanctions framework consisting of its own domestic sanctions under the Terrorism Act and the PF Act and UK sanctions that have been extended to the Cayman Islands by orders in council issued from time to time by the UK government. These Cayman Islands financial crime laws are supplemented by the Cayman Islands Monetary Authority (CIMA) Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands.
The POCA, the Terrorism Act, the PF Act and the Cayman Islands sanctions framework apply to all licensed insurers. The AML Regulations do not apply to licensees that provide reinsurance business. Also, only long-term insurers providing life and annuity business must comply with the AML Regulations. However, CIMA states in its guidance notes that general insurers or licensees that provide general insurance are expected to comply with the AML Regulations and the requirements in the guidance notes. This means that Insurance Act licensees, among other things, must maintain AML procedures including:
- customer due diligence;
- a risk-based approach;
- record keeping; and
- internal controls, including the appointment of a money laundering reporting officer, deputy money laundering reporting officer and anti-money laundering compliance officer, who must be approved by CIMA.
14.1 What specific challenges or concerns does the insurance sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at insurance companies?
The Cayman Islands has no anti-competition legislation. However, if the insurance licensee is part of a broader insurance group that is subject to competition laws of other jurisdictions, this may have some impact on the insurance market in which the licensee participates.
15 Restructuring and insolvency
15.1 What provisions govern insolvency in your jurisdiction and what specific implications do these have for insurance companies?
Insolvency procedures in the Cayman Islands are broadly governed by:
- Part V of the Companies Act;
- the Companies Winding Up Rules, 2018; and
- the Insolvency Practitioners' Regulations, 2018.
These provisions provide for a modern and comprehensive framework which is based on many of the same underlying principles as the corresponding regime in England and Wales.
The principal insolvency procedures that are commonly adopted in the Cayman Islands are:
- official liquidation;
- provisional liquidation;
- voluntary liquidation; and
- schemes of arrangement.
Insolvency proceedings in the Cayman Islands are generally subject to the supervision of the court. In that regard, the Cayman Islands has a specialist Financial Services Division consisting of experienced judges that frequently deal with high-profile and complex commercial disputes arising from the financial services industry.
There are no specific implications for insurance companies arising from the insolvency regime in the Cayman Islands; therefore, the procedures outlined above will generally apply with equal force to insurance-related companies. However, in contrast to non-regulated entities, the Cayman Islands Monetary Authority (CIMA) will often initiate action against insurance licensees, which typically in the first instance will involve the appointment of controllers to assume control of the affairs of the company and submit reports to CIMA. Given that CIMA regulates insurers in the Cayman Islands to a very high standard, the safeguards inbuilt in the insurance regulation – including capital and solvency requirements – often mitigate the insolvency risk of such insurers.
Where an insurance company has segregated portfolios, the Cayman court held in In the Matter of Premier Assurance Group SPC Ltd. (in Official Liquidation) on 19 April 2021 that it has the power under Order 9, Rule 1(1) of the Companies Winding Up Rules to order the establishment of separate liquidation committees in respect of a segregated portfolio company and each of its segregated portfolios. This serves as a recent demonstration of the pragmatic approach adopted by the court when addressing insurance-related insolvency procedures.
16 Trends and predictions
16.1 How would you describe the current insurance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
There were a total of 770 insurance licensees under the supervision of the Cayman Islands Monetary Authority as at 30 June 2021, of which 92 related to the domestic market and 678 related to the international insurance market. There were 25 insurers licensed to offer their products in the domestic market, supported by 67 insurance intermediaries.
As at 30 June 2021, a total of 657 class B, C and D insurers and reinsurers, and 21 insurance managers, were operating in the Cayman Islands. Pure captives and group captives represented the two main categories, with 279 and 125 companies respectively. Twenty-one per cent of the total class B, C, and D insurance companies were formed as segregated portfolio companies, with over 600 segregated portfolios.
The Cayman Islands is increasingly becoming the jurisdiction of choice for reinsurance, particularly for large reinsurers specialising in certain classes of business. The number of class D insurer licences has doubled in the past 18 months, with a total of six licensed reinsurers now operating in the Cayman Islands. This is being driven by a number of factors, including:
- a balanced regulatory approach;
- established and world-class service providers in the jurisdiction;
- a stable political and economic environment; and
- accommodating immigration legislation.
17 Tips and traps
17.1 What are your top tips for insurance companies operating in your jurisdiction and what potential sticking points would you highlight?
The Cayman Islands is a well-established insurance jurisdiction with an effective and flexible insurance regulatory framework. The regulator is approachable and pragmatic, and it is beneficial for an entity considering applying for a licence or acquiring a licensee to engage with the regulator early on, as this will allow for a smoother application process. Once operating in the jurisdiction, a licensee should ensure that it is aware of regulatory and legal obligations as these continue to grow, and that it remains up to date with the legal and regulatory landscape, as this is an evolving regulatory framework.
In terms of traps, non-local insurers offering insurance products into Cayman Islands should ensure that they are not carrying on regulated insurance activities in or from within Cayman Islands without a licence.
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.