New Portfolio Insurance Company Regime for Insurance Companies
Recent amendments to the Cayman Islands Insurance Law, 2010 (the "Law") allow for a segregated portfolio company ("SPC") to register subsidiary companies as portfolio insurance companies (each a "PIC") with the Cayman Islands Monetary Authority ("CIMA"). Although formally enacted, these amendments relating to PICs will only come into effect once the associated regulations have been finalised and brought into force. This is currently anticipated to occur by the end of the second quarter of 2013.
The introduction of the PIC provides a practical legal solution for SPCs to transact insurance business between segregated portfolios (or "cells"). Under current law, business between cells is not permissible because an SPC is a single legal entity. The PIC also facilitates the incubation of smaller captives who might wish, at a later stage, to spinoff as stand-alone captives.
Any exempted company whose voting shares are held by a Cayman Islands SPC on behalf of a cell can register with CIMA as a PIC, so long as the relevant SPC is licensed by CIMA (other than as a Class A insurer). Accordingly, from the time of its registration, a PIC is not required to hold an insurance licence to undertake 'insurance business' that is within the scope of the insurance licence held by its controlling relevant insurer SPC.
The mechanics relating to the formation and operation of PICs include the requirements that:
(a) the PIC at all times be controlled by an SPC which holds an insurance licence (other than a Class A licence);
(b) there be no more than one PIC per cell;
(c) the letters 'PIC' or 'P.I.C.' or the words 'Portfolio Insurance Company' need to be included in its name;
(d) a PIC cannot be an SPC;
(e) the PIC must file a business plan with CIMA;
(f) the voting shares of the PIC must be held by a cell. Voting shares of the PIC cannot be issued, transferred or disposed of in any manner, without CIMA consent;
(g) non-voting shares of the PIC may be held by third parties. Non-voting shares totalling more than 10% of the authorised capital of the PIC cannot be issued, transferred or disposed of in any manner, without CIMA consent;
(h) the PIC cannot hold shares in its controlling relevant insurer SPC;
(i) the insurance manager and registered office service provider ought to be the same for the SPC and the PIC;
(j) every PIC must have a minimum of two directors (who need not be directors of the SPC);
(k) CIMA consent be obtained to form a subsidiary, branch, agency or representative office or to change the name of the PIC;
(l) the PIC is required to maintain the prescribed margin of solvency;
(m) the PIC is required to maintain adequate arrangements for the management of risks (including appropriate reinsurance arrangements);
(n) where the controlling relevant insurer is a 'Class B(iii)' or 'Class B(iv) insurer', make its audited financials available on request to insured persons, third party beneficiaries and other prescribed persons; and
(o) the PIC is required to file audited financial statements with CIMA (unless the requirement is waived).
PICs have the express power to contract with the SPC, any cell and any other PIC related to the controlling relevant insurer SPC. This is of particular importance as it now allows for cells within the SPC structure to participate in different cellular insurance strategies.
Each PIC is a separate legal entity from the SPC and each other PIC. This facilitates the drafting of legal documentation as each entity is a distinct legal person which in turn streamlines compliance with the requirements of the Companies Law.
The Law also provides an option for the automatic novation and vesting with the PIC of all assets and liabilities of a cell either at the time of the registration of the PIC (with CIMA) or within 30 days after registration – all of which make it easy for existing SPC insurers to incorporate a PIC and to move the insurance business from a cell to a PIC.
It is also expected that going forward, SPCs will have greater appeal to smaller captive users and captive programme providers. Prospective clients can establish a captive on an SPC platform using a cell (or PIC) and as and when the programme grows to the point of justifying its existence on a stand-alone basis then the PIC can simply be spun-off from the SPC by applying for its own insurance licence.
For further information, please speak to your usual Maples and Calder contact or one of the persons listed above.