On 13 July, 2012, the Cayman Islands Government released for consultation a draft Bill to amend the Insurance Law so as to allow insurers formed as segregated portfolio companies to enjoy the same benefits as incorporated cell companies in other jurisdictions.
In formulating the bill, the Government was advised by the Financial Services Legislative Committee and the Insurance Managers Association of Cayman. Paul Scrivener, partner at Solomon Harris and head of the law firm’s insurance group, who chaired the sub-committee of the FSLC, which was tasked with assisting in the development of the bill, said the bill is the natural next step in the evolution of the SPC in the insurance sector.
“It provides a number of new opportunities for the use of SPCs not least because it neatly overcomes the current inability of cells of the same SPC to be able to contract with each other,” he said. “If passed into law, this would be one of the most significant legal developments for Cayman’s insurance industry since SPC legislation was first introduced in 1998.”
Cayman’s proposed form of incorporated cell company legislation is thought to be more robust than other jurisdictions offering ICCs because the model operates squarely within fundamental and well-understood principles of corporate law.
How does it work?
A new or existing SPC insurance company will effectively be able to incorporate one or more of its segregated portfolios (ie cells) by establishing a Portfolio Insurance Company under the cell. The Portfolio Insurance Company will then conduct the relevant insurance business instead of the cell. Whilst regulated by the Cayman Islands Monetary Authority, the PIC will not need to be separately licensed as an insurance company and, unlike a traditional segregated portfolio (cell), the PIC will be a separate legal entity, ie an exempted company limited by shares.
The particular advantages of a PIC compared to a cell of an SPC include:
Ability to contract with other cells or PICs within the same SPC to facilitate reinsurance, quota sharing and pooling
A separate board of directors permitting governance flexibility
For counter parties unfamiliar with cells, a PIC may be more readily accepted than a cell
A PIC can easily transition to a stand-alone captive
Because a PIC will be indistinguishable from any other company limited by shares, likely recognition as a separate legal entity for US tax purposes, allowing it to make its own tax elections under its own federal tax identification number.