The Cayman Islands Insurance Law 2010

Cayman has long enjoyed an effective insurance regulatory regime, supplemented by the advantages of tax neutrality, accessible and pragmatic regulators and sophisticated service providers that are responsive, prompt and thorough.  As a jurisdiction, Cayman could be forgiven for calling it a job well done and leaving it alone.  However, the Cayman Islands government, working in close co-operation with the private sector, has instead undertaken a comprehensive review of the existing legislative regime for insurance and reinsurance companies.  The end result is a state-of-the-art legislative product that is certain to improve Cayman’s position as a leading jurisdiction for the insurance industry. Kevin Butler, Partner with Conyers, Dill and Pearman reports.

Once operative, the Insurance Law, 2010 will provide a modern, flexible and comprehensive regulatory regime for the insurance industry, and seeks to ensure Cayman’s ongoing compliance with and adherence to the highest international regulatory standards.  The Insurance Law will repeal and replace the Insurance Law (2008 Revision), covering fundamental matters such as licensing of persons carrying on insurance or reinsurance business (and those acting as insurance brokers, agents or managers), the obligations of licensees, and the powers and duties of the Cayman Islands Monetary Authority.

Under the Insurance Law, no person may carry on insurance business, reinsurance business, or business as an insurance agent, broker or manager unless that person holds a valid licence issued for that purpose.  Application for a licence is made to CIMA and must contain a business plan and the prescribed fee.

Under the previous law, insurers were categorised as either Class A insurers (being insurers carrying on domestic insurance business in the Cayman Islands) or Class B insurers (either restricted or unrestricted, and being insurers carrying on captive insurance business).  The categories of licences which may be granted by CIMA for the conduct of insurance business have now been redefined.  There are now four main categories of insurance licences: Class A (‘domestic’ insurers), Class B (‘captives’), Class C (‘cat-bond’, or ‘special purpose insurers’) and Class D (‘reinsurers’).

Class A insurers can be incorporated locally or overseas, and continue to be those that are licensed to carry on domestic insurance business in the Cayman Islands. 

Class B captives are now divided into three sub-categories.  Class B(i) insurers carry on non-domestic insurance business in respect of which at least 95 per cent of net premiums written will originate from the insurer’s related business.  For Class B(ii) insurers the threshold is set at over 50 per cent.  For Class B(iii) insurers, 50 per cent or less of the net premiums written will originate from related business.

The addition of Class C is a significant change from the previous regime.  The Cayman Islands has for many years been incorporating and licensing insurance companies used to issue cat bonds.  A company wishing to implement such a structure would apply for the old Class B licence, which had no set capital requirements, allowing CIMA the flexibility to issue the licence with only nominal capital in place.  Now, in response to the needs of the industry, a separate category has been created for these types of insurers.  This new category provides insurers with clarity, certainty and predictability, making a marked improvement over the previous regime.

Class D is reserved to those insurers conducting only reinsurance business ‘and such other business as may be approved in respect of any individual licensee’.  The capacity to approve ‘such other business’ is the hallmark of the Cayman regulatory system: offering just the right balance between flexibility and certainty in a dynamic, rapidly evolving industry.

Obligations of licensees
Clear and concise provisions have been crafted dealing with the continuing obligations for licensees, including requirements to maintain audited accounts, undertake certain filings, conform to solvency requirements and employ fit and proper personnel in key roles.  As the specific requirements vary depending on the category of licence, full particulars will not be set out here but our more detailed publication entitled, “Cayman Islands Insurance Companies” is available on our website or upon request.

Powers and duties of CIMA

CIMA is now charged with the obligation to undertake a regular general review of the insurance business in the Cayman Islands, which will ensure that Cayman remains responsive to the needs of the industry in years to come.  In addition, CIMA’s scope of supervision and powers of enforcement are clarified and in some cases expanded, enabling CIMA to better serve the public and the industry in the event of an apparent regulatory breach.

More to Come
The Insurance Law, 2010 will come into force on a date to be appointed by Order of the Governor in Cabinet. It is expected that subsidiary legislation, including regulations and guidance notes, will be published in due course.