A warm welcome to the Summer edition of Conyers Coverage. The whirlwind that is the Cayman Islands (re)insurance industry continues to blow with gusto! To keep you updated on recent developments, we include various items from our Insurance, Regulatory and Litigation teams, we ponder the possibilities and implications for the Cayman Islands in potentially securing Qualified Jurisdiction status with the NAIC and lots more beyond. We think there's something for everyone in our latest edition so please dig in.
To NAIC or Not to NAIC?
Arguably the most notable takeaways from the [Re]Connect conference were the updates on the positive progress the Cayman Islands has made in its quest toward (hopefully) making a formal application to secure Qualified Jurisdiction status with the NAIC. This is unquestionably an exciting prospect and would be a massive milestone event for our local industry. Whilst the public announcements have generated confidence in CIMA's progression as a reinsurance jurisdiction and keeps the jurisdiction on the "front foot" in terms of regulatory evolution, there is much speculation within the industry as to changes QJ status might bring, both positive and negative.
We share our thoughts here.
Who is Actually the Actuary? Appointed Actuary and Peer Review Actuary Appointments in Cayman
In light of the influx of life & annuity reinsurers on-island, we thought it useful to provide a refresher on the role of the appointed actuary and peer reviewing actuary (the "PRA") in the Cayman Islands and matters for licensees to be mindful of in connection with their appointment and submission of their reports.
Click here for our insight into the appointment process and the role and responsibilities of the appointed actuary and PRA.
Utilising Surplus Notes
Although very much a US insurance specific funding mechanism, we are increasingly seeing interest from clients in issuing surplus notes (the "Notes") from their Cayman licensed carriers and seeking equivalent treatment by CIMA on the issue of the Notes. That this is possible in the Cayman Islands is testament to the flexible nature of our regulatory regime and of course that our market is designed largely to support US based stakeholders.
In our experience of these transactions, the Notes would be rated and have a similar character and bear terms substantially similar to "surplus notes" popular for a long time in the US insurance market. Such instruments may, under statutory accounting principles, be classified as equity on the basis of their subordinate nature and are characterised in particular by a requirement to obtain approval from the relevant regulatory body to make each and any payment of principal or interest in the case of the Notes.
In practice, the Cayman carrier would among other things and subject to CIMA approval:
- issue an inter-company surplus note of up to a USD million amount that bears terms equivalent to a surplus note issuance compliant with applicable requirements of the NAIC;
- amend its existing Prescribed Capital Requirements ("PCR") such that the proceeds of the proposed Note Issuance would be characterised as "Shareholder Equity" to be included within the Company's "Total Available Capital" for future determinations of adherence by the Company to its PCR; and
- approve some related and incidental amendments to the Company's business plan.
Proceeds from the Notes issuance are generally used for corporate and working capital purposes, to support growth and potentially the assumption of additional reinsurance and merger & acquisition activity – without dilution of existing equity holders.
Restructuring in the Cayman Islands: The New Regime
On August 31, 2022, significant amendments to Part V of the Cayman Islands Companies Act ("Act") took effect to revamp the Cayman Islands restructuring regime. These amendments introduced the new role of a court-appointed "Restructuring Officer" and a dedicated "Restructuring Petition." The Cayman Islands restructuring officer regime ("RO Regime") shares certain features with the Chapter 11 bankruptcy procedure in the US and Canada's Companies' Creditors Arrangement Act.
Now that the RO Regime is approaching its two-year anniversary, we take the opportunity to provide a brief overview of the RO Regime and an update on how it is working in practice based on the first decisions such as Re Oriente Group Limited, Re Aubit International and Re Holt Fund SPC.
Read more here.
Regulatory Updates for Insurers
1. AML Updates
The Anti-Money Laundering (Amendment) Regulations, 2024 came into force 19 April 2024, significantly updating and strengthening the Anti-Money Laundering Regulations (the "AML Regulations"). The amendments expanded compliance requirements to include counter-terrorist and proliferation financing measures and oversight of virtual assets has been strengthened.
These changes follow the welcome news of Cayman's removal from the UK AML List in December, and from the EU AML in February after Cayman was successful struck off the FATF 'Grey List' in October last year.
Removal from these lists followed extensive improvement and overall strengthening of the Cayman Islands AML / CTF regime. The Cayman Islands is also rated as 'compliant' or 'largely compliant' with all 40 of FATF's AML / CTF recommendations.
2. Data Breaches – What to do if (and when) they happen
It happens in an instant – you hit send on an email or forward attachments, and then realise you've sent personal data to the wrong recipient. While autofill is a handy tool, we've seen a rise in the number of personal data breaches from the use of autofill and more generally. We have advised many clients recently on the steps to take once a breach has been identified and the reporting obligations under the Cayman Islands Data Protection Act (2021 Revision) (the "DPA").
Where a data breach is identified, the data controller must notify the Cayman Islands Ombudsman and affected data subjects without undue delay within 5 days of becoming aware of the breach, unless the breach is unlikely to prejudice the data subject's rights and freedoms. There may also be associated reporting obligations to CIMA by virtue of the (re)insurers regulated status that need to be considered.
The Conyers team is well versed on advising on any such incidents and requirements under the DPA and we are always on hand to help.
3. Beneficial Ownership Updates
The Beneficial Ownership Transparency Act, 2023 (the "BOT Act") came into force on 31 July 2024, with full compliance required by 1 January 2025. This replaces the prior Beneficial Ownership Regime. Draft regulations and guidance had been under consultation and finalised versions of the Beneficial Ownership Transparency Regulations, 2024 have now been issued and commenced on 31 July 2024, and the finalised guidance is available on the General Registry's website (https://www.ciregistry.ky/publications/ ).
The exemptions in the prior Beneficial Ownership Regime have been removed, although entities "licensed under a regulatory law", such as (re)insurers licensed with CIMA will be able to utilise an "alternative route to compliance" under the new BOT Act.
Instead of filing a written confirmation of exemption, licensed (re)insurers will be required to file a written confirmation with the competent authority stating that they are licensed under the Insurance Act and providing their licence number. Conyers can assist with advising on compliance with the relevant changes.
The monthly filings have now been suspended to allow for the transition to reporting under the new regime.
For the latest Cayman Islands regulatory updates from our team, please refer to our latest Regulatory & Risk Advisory Review released last month.
Economic Substance Enforcement Regime – Applicable to Insurance Entities
It has now been over a year since the updated Enforcement Guidelines: Economic Substance (the "Guidelines") were issued on 31 March 2023, outlining the enforcement powers and processes of the Cayman Islands Tax Information Authority (the "TIA") in respect of administrative penalties against parties in breach of the International Tax Co-operation (Economic Substance) Act (2024 Revision) (the "ES Act").
The Guidelines provide guidance on the principles for the application of the administrative penalty framework to entities that are potentially subject to enforcement action as a consequence of contravening the ES Act and are to be read in conjunction with the Guidance on Economic Substance for Geographically Mobile Activities V 3.2 and Practice Points.
The Guidelines reflect the TIA's objective to ensure that entities comply with obligations under the ES Act by reporting complete and accurate information as to whether they are carrying on relevant activities and, if so, whether or not they are relevant entities under the legislation and are thereby required to satisfy economic substance requirements in the Cayman Islands (the "ES Test").
Read on here for our views on the latest updates in enforcement action by the TIA.
Meet Our Regulatory & Risk Advisory Team
Conyers continues to grow its Regulatory & Risk Advisory practice in the Cayman Islands with several significant team developments. These strategic enhancements reinforce Conyers' commitment to providing exceptional regulatory legal advice to clients in the Cayman Islands and globally.
Conyers is pleased to announce the recent promotions of Róisín Liddy-Murphy, Head of Regulatory & Risk Advisory (Cayman), to the position of Partner, and Sarah Howie to Counsel.
The Regulatory & Risk Advisory team has also grown with the welcome addition of Wayne Flanagan as Associate. With a strong background in a range of practice areas including financial regulations, asset management and investment funds, Wayne brings fresh insights to the practice and has hit the ground running providing regulatory assistance to a variety of (re)insurers. A warm welcome Wayne!
Local Industry News
Hot off the press! CIMA's New Insurer Licensee Statistics are available here, showing a record 24 new insurers licensed in the first half of 2024.
Continuing the trend of recent years, 70% of the insurer licences issued were for commercial/affiliated (re)insurers, with 9 out of the 15 Class B(iii)'s opting to establish as a segregated portfolio company, evidencing the popularity of Cayman's SPC product for third party risk.
There were also two new entrants to the insurance manager space with both Blue Ocean Insurance Management Services Ltd. and Nascent Insurance Management Cayman Ltd. entering the market in Q2. Conyers is delighted to have advised on the majority of the new licences issued in 2024 and is expecting these numbers to continue to surge in the second half of the year.
The Conyers Insurance team is looking forward to attending the upcoming Reinsurance Roundtable event in New York City on Wednesday 18 September, which will be hosted by CIRCA in collaboration with IMAC and Cayman Finance. Please reach out if you would like more details about the event or to connect with us while our team is in New York.
The roundtable follows an incredibly successful [Re]Connect in April, being the first dedicated reinsurance conference in the Cayman Islands.
Hosted by CIRCA, close to 450 reinsurance professionals gathered at [Re]Connect to network and hear directly from the Government, regulator, service providers and other stakeholders on Cayman's growing reinsurance industry.
If you missed [Re]Connect (and Derek's insightful panel discussion!) you can review Conyers' key takeaways here.
For more industry updates, check out the latest newsletter from our friends at CIRCA here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.