1. INTRODUCTION
The Cayman Islands 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.
The Insurance Act, 2010 (the "Act") (as amended) provides a modern, flexible and comprehensive regulatory regime for the insurance industry and ensures Cayman's ongoing compliance with, and adherence to, the highest international regulatory standards. The Act covers 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 ("CIMA").
2. NSURANCE REGULATORY FRAMEWORK
2.1. nsurance Licensing and Regulatory Legislation
The insurance licensing and regulatory regime in the Cayman Islands is primarily comprised of the Act and the regulations (the "Regulations") promulgated thereunder.
The Act applies to any person carrying on insurance business in or from within the Cayman Islands, including local companies (companies that are predominantly owned by Caymanians and which carry on business mainly within the domestic economy), exempted companies (companies that are predominantly owned by non-Caymanians and which carry on business from the Cayman Islands but not within the domestic economy unless licensed to do so) and ordinary resident companies. All persons carrying on business in or from within the Cayman Islands as an insurance agent, broker or manager are also required to be registered under the Act.
The Act distinguishes between general insurance business, long term business and reinsurance business. With effect from 28 June 2022, the Act was amended so that contracts of insurance and reinsurance and long term business could include capital redemption contracts.
General insurance business is described as any business which is not long term business and refers to the business of accepting risks by effecting or carrying out contracts of insurance, whether directly or indirectly, and includes running-off business including the settlement of claims.
Long term business consists of insurance contracts covering life, annuity, accident and disability risks and certain other types of contracts expressed to be in effect for a period of not less than five years or without limit of time.
Reinsurance business means the business of accepting risks by effecting or carrying out one or more contracts of reinsurance whether directly or indirectly, and includes running-off business including the settlement of claims.
2.2. The Cayman Islands Monetary Authorit
The regulation of those matters pertaining to the Act is the responsibility of CIMA. CIMA is responsible for the licensing, supervision, regulation and inspection of the Cayman Islands' insurance companies and for the licensing of all insurance agents, brokers and managers.
2.3 Continuing Regulation
The nature of the regulation under the Act is a combination of self-regulation, filings of statutory financial statements and certifications as to compliance with the applicable statutory requirements, together with review and investigation by CIMA in specified circumstances.
CIMA has wide powers to examine the affairs of insurance companies, with full access to business and other records of these companies and power to call on the insurance manager to provide any information or explanation.
3. LICENSING UNDER THE INSURANCE ACT
3.1. Licence Procedure
All persons seeking to carry on insurance business in or from within the Cayman Islands are required to be licensed under the Act. All licence applications are subject to CIMA approval.
Application for a licence is made to CIMA in the prescribed form and is typically filed either by the proposed company's attorneys or the insurance manager. The prescribed licence application fee must be paid at the time of application and is non-refundable. It should be noted that the proposed name must be cleared in the normal way under the Companies Act and by CIMA.
CIMA has the discretion to approve or decline any registration application or to impose conditions if it feels it is appropriate to do so. CIMA is required to exercise its discretion in the public interest.
Once approval has been granted, the company can then proceed in accordance with the provisions of the Companies Act. Thereafter the company must be funded with the required net worth.
Following incorporation, evidence of incorporation and the requisite funding (usually written confirmation from the insurance manager or local bank) is then forwarded to CIMA which will issue the relevant licence. Once the licence has been issued, the company may commence business. It is generally considered appropriate to allow for a period of three weeks for the licensing process depending on the complexity or difficulty of the application.
3.2. Business Plan
When making a licence application, the applicant must, among other things, submit an acceptable business plan and three-year financial projections. The business plan should cover the following areas:
- classes of business to be written;
- volume of premium to be written for each class;
- proportion of business to be reinsured;
- nature of reinsurance program;
- amount of retention of net premiums;
- maximum liability per risk/occurrence;
- details of "fronting" arrangements.
Generally, the business plan is divided into two sections setting out (1) the fundamental representations and information and (2) supporting information i.e. financial projections etc. It should be noted that the first part becomes obligatory once CIMA approves the same, but not the second part.
The licence application must also provide a police clearance certificate (or an affidavit attesting that there have been no convictions), a resume and references for each director and officer, which demonstrate that they have sufficient insurance experience. Details of the independent auditors must also be submitted.
Once the licence is granted, the licensee is only permitted to conduct the insurance business detailed within the business plan.
3.3. Applicant Requirements
Applicants must demonstrate that they are fit and proper persons to carry on insurance business. In determining whether a person is "fit and proper", CIMA will consider a person's (a) honesty, integrity and reputation, (b) competence and capability, and (c) financial soundness.
CIMA is also bound by the Act to have regard to whether the applicant will be able to comply with the requirements of the Act and with The Anti-Money Laundering Regulations and whether the applicant has personnel with the necessary skills, knowledge and experience and appropriate facilities, books and records.
4. CATEGORIES OF INSURANCE LICENCES
There are 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 (subject to foreign company registration in the Cayman Islands) and are those that are licensed to carry on domestic insurance business in the Cayman Islands.
Class B captives are divided into three sub-categories. Class B(i) insurers carry on non-domestic insurance business in respect of which at least 95% of net written premiums will originate from the insurer's related business. For this purpose related business means business which will originate from the insurer's members or the members of any group with which it is related through common ownership or a common risk management plan, or as determined by CIMA. For class B(ii) insurers, the threshold is set at over 50%. For class B(iii) insurers, 50% or less of the net written premiums will originate from related business.
A class B insurer may carry on domestic business if such business forms less than 5% of net written premiums or where CIMA has otherwise granted prior approval.
In response to the needs of the cat-bond industry, a separate category, class C, was created for insurance companies that issue catastrophe bonds. In order to qualify for a class C licence, the insurance obligations of the class C insurers are required to be 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 investments, contracts for difference and such other funding mechanisms approved by CIMA. This category provides insurers with clarity, certainty and predictability, making a marked improvement over the previous regime.
Only exempted companies or foreign companies that have a minimum of two directors may be licensed as class B or class C insurers.
A Class D licence 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 Islands' regulatory system: offering just the right balance between flexibility and certainty in a dynamic, rapidly evolving industry.
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