New Insurance Regime in the Cayman Islands

20 December 2012

The Insurance Law, 20101 as amended by the Insurance (Amendment) Law, 2011 (collectively, the “Law”) and associated regulations (collectively, the "Regulations") are now in force.

The Law brings about a number of changes to the regulatory regime covering matters such as categories of licence, the obligations of licensees, and the power and duties of the Cayman Islands Monetary Authority ("CIMA").  While providing for increased regulatory transparency for existing and prospective licensees, the Law also provides for greater streamlining in the regulation of licensed entities.

CIMA has introduced the following categories for the licensing of insurers:

(a) Class A insurer licence, for carrying on of domestic business2 or limited reinsurance business.

(b) Class B insurer licence, for the carrying on of insurance business other than domestic business (except that such an insurer may carry on domestic business where such business forms less than five per cent of net premiums written or where CIMA has otherwise granted prior approval).  A holder of a Class B insurer licence will be regulated as:

  (i) a Class B(i) insurer where at least 95 per cent of the net premiums written originate from the insurer's related business;

  (ii) a Class B(ii) insurer where over 50 per cent of the net premiums written will originate from the insurer's related business; and

  (iii) a Class B(iii) insurer where 50 per cent or less of the net premiums written will originate from the insurer's related business.

(c) Class C insurer licence, for the carrying on of insurance business involving the provision of reinsurance arrangements in respect of which the insurance obligations of the Class C insurer are 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 instruments, contracts for differences and such other funding mechanisms approved by CIMA.  Typically such licensees would be 'cat-bond' issuers, insurance transformers and other types of SPV insurers.

(d) Class D insurer licence, for the carrying on of reinsurance business and such other business as may be approved in respect of any individual licence by CIMA.

The scope of application of each of the insurance agent licence, the insurance broker licence and the insurance manager licence has also been updated to reflect modern practice.

The Regulations cover in detail the prescribed fees, application forms and reporting forms, capital and solvency margins and ratios for each licence class.  Subject to CIMA approval, Class B(iii) and Class D insurers are permitted to use their own internal capital models as alternatives to the capital requirements prescribed by the Regulations.  In addition, the opportunity has been taken to codify established regulatory practice by specifically providing that derivative instruments will not be categorised as insurance products.  This reaffirms Cayman's commitment to being the leading domicile for cat-bond issuers and other SPV insurance and related derivative products.

Existing licensees should begin the process of evaluating the licence under which they wish to operate pursuant to the Law as they may only continue operating under their existing licences for a transitional period of 18 months ending on 1 May 2014.  Written notification should be submitted to CIMA in good time so that confirmation of the new licence can be given prior to the end of the transitional period.  The same transitional period is allowed for licensees to comply with the various solvency and risk management provisions of the Law.

For further information, please speak to your usual Maples and Calder contact or any of the individuals listed above.

1See previous client update dated 9 November 2010.
2Under the Law, "domestic business" means insurance business where the contract is in respect of life, safety, fidelity or insurable interest, other than in respect of property, of a person who at the time of effecting the contract is ordinarily resident in the Islands, or property that at the time of effecting the contract in the Islands or, in the case of a vehicle, vessel or aircraft, or other movable property ordinarily based in the Islands.


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