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Ownership and organisational requirements

Ownership of (re)insurers

Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?

There are no restrictions on ownership of or investment in (re)insurers in the Cayman Islands, other than that:

  • shares totalling more than 10% of the authorised share capital of the insurer cannot be issued; and
  • issued shares totalling more than 10% of the issued share capital or total voting rights of an insurer cannot be transferred or disposed of in any manner without the prior approval of the Cayman Islands Monetary Authority (CIMA).

Some exceptions apply (eg, for listed companies) and approval is necessary for the transfer of beneficial interests.

What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?

The issue or transfer of shares of more than 10% of an insurer requires the approval of CIMA. CIMA requires a shareholder to file a personal questionnaire together with supporting documents in order to determine whether he or she is fit and proper. The personal questionnaire can be found on the CIMA website.

Organisational requirements

Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what aclre the common structures used?

There is no mandatory structure, but most insurers are set up as Cayman Islands exempted companies. Some are also set up as segregated portfolio companies (SPCs), pursuant to which separate business lines can be set up in a segregated portfolio. Each portfolio segregates the assets and liabilities from the other portfolios and general account of the SPC. Rent-a-captives can be run through a SPC. However, the SPC is the licensed entity, and just one licence is issued.

In addition, an exempted company that is controlled by an insurer other than a Class A insurer and which is established as an SPC, may be registered as a portfolio insurance company (PIC). If registered, a PIC may carry on insurance business without obtaining a licence. Every PIC is required to:

  • have at least two directors;
  • carry on insurance business only in accordance with the information given in its business plan, unless otherwise approved by CIMA;
  • maintain prescribed margins of solvency and capital requirements;
  • maintain adequate arrangements for the management of risks; and
  • maintain an effective system of government approved by CIMA.

Where a PIC’s controlling insurer is a Class B(iii) insurer, the PIC must make its audited financial statements available, on request, to insured persons, third-party beneficiaries and any other persons that may be prescribed.

Every PIC must prepare financial statements in accordance with generally accepted accounting principles (GAAP). A PIC that conducts long-term business must, in addition to preparing GAAP financial statements, prepare an annual actuarial valuation of its assets and liabilities, certified by an approved actuary in order to satisfy CIMA of its solvency. The controlling insurer, each of its segregated portfolios and each portfolio insurer which it controls must all have the same financial year end.

A controlling insurer may control only one PIC on behalf of any relevant segregated portfolio.

The directors, managers and officers of a PIC may be, but need not be, the same persons as the directors, officers and managers of the PIC’s controlling insurer or the same persons as the directors, officers and managers of another PIC which is controlled by the controlling insurer. However, a PIC must appoint the same insurance manager as its controlling insurer. It must also have the same registered office as its controlling insurer.

Subject to the memorandum and articles of association of a PIC, or any restrictions or limitations imposed by CIMA, there are no restrictions or limitations on a PIC entering into a contract, transaction or arrangement with any person, including:

  • its controlling insurer acting on behalf of any of its segregated portfolios; or
  • its controlling insurer acting other than on behalf of any of its segregated portfolios or any other PIC.

A PIC may not hold shares in its controlling insurer.

Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?

Directors, officers and management personnel must also be approved by CIMA as fit and proper and must provide personal questionnaires and supporting documentation. As a company, the insurer’s business will be managed by the board of directors. CIMA, through various rules, regulatory policies and statements of guidance sets out guidelines to provide the board with a framework for sound and prudent governance to assist it in fulfilling its duties efficiently and effectively. CIMA expects the insurer to develop detailed policies with respect of the role and duties of board members, conflicts of interest, delegation of authority, remuneration for directors and senior management and other internal controls. It is also important for the board to review and monitor the policies and implementation of the policies on a regular basis.

With respect to statements of guidance, at present these exist with respect to outsourcing, corporate governance, nature, accessibility and retention of records, use of the Internet, marketing, responsibilities of insurance managers, market conduct, reinsurance arrangements, internal controls, business continuity management, asset management and investment, capital adequacy and anti-money laundering and combating the financing of terrorism. Accordingly, a captive insurer should work closely with its insurance manager and legal adviser to ensure that all of CIMA’s regulatory policies and guidelines are met.

Operating requirements

Authorisation procedure

Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?

All insurers must be approved and licensed by the Cayman Islands Monetary Authority (CIMA) before operating in the market. Insurers operating locally may have certain further requirements, such as having a place of business established in the Cayman Islands.

Financial requirements

What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?

In respect of a Class A insurer that is an external insurer, ‘available capital’ means the total assets located in the Cayman Islands minus the total liabilities and any other applicable deductions relating to Cayman risks. The minimum capital requirement is the greater of $1 million or the policy liability. The prescribed capital requirement for an external Class A insurer is 150% of the minimum capital requirement.

In respect of a Class A insurer that is a local insurer, ‘available capital’ means the capital and surplus comprising:

  • issued share capital;
  • additional paid in capital, including share premiums;
  • retained earnings;
  • investment reserves; and
  • currency translation reserves and other equity reserves.

The available capital requirement must exceed the minimum capital requirement, which is the greater of:

  • $300,000; or
  • the square root of the sum of the square of:
    • capital required for subsidiaries;
    • capital for assets;
    • margin for policy liabilities;
    • margin for catastrophes; and
    • margin for foreign exchange risk.

The prescribed capital requirement for a local Class A insurer is 125% of the minimum capital requirement.

Minimum capital requirements for Class B, C and D insurers means the minimum capital that an insurer must maintain in order to operate. The minimum capital requirements are as follows:

Class

General

Long-term

Composite

B(i)

$100,000

$200,000

$300,000

B(ii)

$150,000

$300,000

$450,000

B(iii)

$200,000

$400,000

$600,000

C

$500

$500

$500

D

$50 million

$50 million

$50 million

 

Prescribed capital requirements are the total risk-based capital that a Class B, C or D insurer must maintain in order to operate in a safe and sound manner.

The prescribed capital requirements for Class B(i) and C insurers are equal to the minimum capital requirements. In respect of Class B(ii), B(iii) and D insurers, the prescribed capital requirements are a function of premiums or reserves. Specific guidelines and calculations relating to prescribed capital requirements are available from law firms and service providers in Cayman.

Do any other financial requirements apply?

Further capital requirements may be considered on a case-by-case basis at the time of application for a licence or following an amendment to a business plan. Every licensed insurer must prepare financial statements in accordance with generally accepted accounting principles. Auditors approved by CIMA must be appointed.

An insurer carrying on long-term business must, in addition to preparing GAAP financial statements, prepare annually an actuarial valuation of its assets and liabilities, certified by an approved actuary, in order to satisfy CIMA of its solvency.

An auditor must immediately give CIMA written notice if he or she suspects that an insurer is:

  • unable or likely to become unable to meet its obligations as they fall due;
  • carrying on or attempting to carry on business or winding up its business voluntarily in a manner that is prejudicial to its policyholders or creditors;
  • carrying on or attempting to carry on business without keeping any or sufficient accounting records to allow its accounts to be properly audited;
  • carrying on or attempting to carry on business in a fraudulent or criminal manner; or
  • carrying on or attempting to carry on business otherwise than in compliance with the laws of the Cayman Islands or a condition of its licence.

Class A and D insurers must publish their audited financial statements no later than the date that they are submitted to CIMA. Class B(iii) insurers must make their audited financial statements available, on request, to insured persons, third-party beneficiaries and any other persons that may be prescribed.

Personnel qualifications

Are personnel of (re)insurers subject to any professional qualification requirements?

Directors, officers and management personnel must be approved by CIMA as being fit and proper. There are no set criteria for this, but education, professional qualifications and experience are factors. The personal questionnaire (available on the CIMA website) sets out the information that must be provided to CIMA.

Business plan

What rules and requirements govern the business plans of (re)insurers?

All insurers must carry on insurance business only in accordance with the information given in their approved licence application and business plan. The prior written approval of CIMA is required for any change to the approved business plan or the information supplied in the application. A (re)insurer’s business plan usually contains, at minimum:

  • a summary of the business to be written;
  • the identity of the insureds;
  • the reinsurance policy;
  • the investment policy;
  • the outsourcing policy;
  • business continuity management;
  • the dividend policy; and
  • capital and reserving methodology.

Risk management

What risk management systems and procedures must (re)insurers adopt?

All insurers must establish, implement and maintain a documented risk management framework capable of promptly identifying, measuring, assessing, reporting, monitoring and controlling all sources of risk that could have a material impact on operations in a timely manner. All insurers should have a documented risk management framework in place, which includes:

  • a written risk management strategy approved by the board, which in the opinion of the board addresses all material risks to which the insurers is likely to be exposed based on its business activities;
  • risk management policies and procedures that in the opinion of senior management are adequate to identify, assess and report on the material risks to which the insurer is exposed; and
  • identification of the managerial responsibilities and controls designed to ensure that the policies and procedures established for risk management are adhered to at all times.

Reporting and disclosure

What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?

All insurers must make annual filings to CIMA. In particular, each insurer must file:

  • audited financial statements in accordance with internationally recognised accounting standards;
  • a certification of solvency; and
  • written confirmation that the information set out in the application for the licence, as modified by any subsequent changes approved by CIMA, remains correct.

Other requirements

Do any other operating requirements apply in your jurisdiction?

Much depends on the conditions imposed on the licensee.

Non-compliance

What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?

CIMA has wide powers to oversee and regulate licensees. CIMA can intervene where it is of the opinion that a licensee:

  • is unable to meet its obligations as they fall due;
  • is carrying on business or is part of a group carrying on business that is detrimental to the public interest or to the interests of policyholders;
  • has contravened the Insurance Law or the Anti-money Laundering Regulations;
  • has failed to comply with conditions set out in the licence;
  • is not conducting the direction and management of its business in a fit and proper manner;
  • has a person holding a position as a director, manager or officer of a licensee’s business who is not fit and proper person to hold the respective position; or
  • has a person holding or acquiring control or ownership of a licensee who is not a fit and proper person to have such control or ownership.

In particular, CIMA has the power to:

  • suspend a licensee’s licence;
  • revoke a licence;
  • impose conditions;
  • require the substitution or removal of any director, manager or officer of the licensee;
  • at the expense of the licensee, appoint a person to advise the licensee on the proper conduct of its affairs;
  • appoint a receiver at the expense of the licensee; and
  • take such other actions as it considers necessary.

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