The Cayman Islands government recently announced a draft Bill to amend the Insurance Law (the Bill) to allow certain insurers formed as segregated portfolio companies (SPCs) to register portfolio insurance companies (PICs) and thereby, obtain the same advantages as incorporated cell companies in other jurisdictions.
The proposed changes to the Insurance Law would permit a new or existing SPC to establish one or more of its segregated portfolios, or cells, by forming a PIC under the cell. The PIC, instead of the segregated portfolio, would then conduct the relevant insurance business.
While regulated by the Cayman Islands Monetary Authority (CIMA), the PIC would not need to be separately licensed as an insurance company and unlike the traditional segregated portfolio or cell, the PIC would be a separate legal entity (i.e., an exempted company limited by shares).
The proposed model would permit PICs to have the same directors, managers and officers as the SPC or different persons.
The Bill also provides that the PIC be at all times controlled by the SPC and an SPC may not control more than one PIC for each segregated portfolio. In addition, pursuant to the Bill, no voting shares in a PIC can be issued, transferred or disposed of in any manner without the prior approval of CIMA.
Some benefits of a PIC compared to a cell of an SPC include:
- the ability to have a separate board of directors provides flexibility in terms of corporate governance;
- a PIC can contract with any person including other cells or PICs within the same SPC which is helpful in terms of reinsurance, quota sharing and pooling;
- counterparties who are not familiar with segregated portfolios may more readily accept a PIC as opposed to a segregated portfolio; and
- a PIC can easily be converted into a standalone captive insurance company.
The Bill is currently available for public discussion. The Cayman Islands government has stated that the proposed amendments to the Insurance Law are more cost effective and efficient than introducing standalone incorporated cell company legislation, will boost Cayman’s competitiveness, and will help contain the costs of doing business for insurers.