Merger, Consolidation
and Sale
Cayman Captive Forum
Tuesday, 2 December 2014
Kevin Butler
Conyers Dill & Pearman
Managing Director
Dara Keogh
KPMG
Partner
Brett Wiggins
MetLife
Senior Counsel
Clayton Price
Marsh Management
Services Cayman
Managing Director
The Merger
Two large insurance companies merge to form “Global Insurance Company” domiciled in
Canada/U.S.
The First, a healthcare insurer based in the US, maintains a captive in
Bermuda, and an investment company in Cayman.
The Bermuda captive is a large company in its own right.
The Second, a Canadian insurance company, has a captive in Barbados.
The Barbados captive was domiciled there for tax reasons.
Post-merger, Global Insurance Company wants to simplify its corporate structure
How should the captives be handled?
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U.S.
Healthcare Insurer
Bermuda
Captive
Cayman
Investment
Company
Canadian
Healthcare
Insurer
Barbados
Captive
4
Combined
Healthcare Insurer
(H.Q.-U.S.)
Bermuda
Cayman
Investment
Company
Barbados
Captive
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Should we Consolidate the Captives?
Cost of maintaining two captives
• Taxes, fees and local service provider costs
• Burdens of multiple captive (e.g., board meetings,
governance)
Capital Considerations
• How much capital will be tied up?
• Bermuda Solvency II/BSCR Requirements?
6
Should we Consolidate the Captives?
Regulatory Relationships
• Other captives/operations in domicile?
• Input from regulators in other domiciles
where captive is doing business?
• Observe all discontinuance
requirements -- Important not to “burn
bridges” on departure
7
Should we Consolidate the Captives?
Obligations to Captive’s Insurers/Lenders/ Financial
Counterparties/ Guarantors
• May require consent from Lenders to re-domesticate/merge
• Where asset segregation is required, consider protected cell
structure
Conclusion
In most cases, a single captive can accomplish what is
needed.
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Client Considerations
Regulator Sophistication
• Ability to fully understand captive operations and risks
Regulator Responsiveness
• Adequate staffing to ensure timely response
Regulatory Clarity & Stability
• Clear regulations that are not frequently changed
Adaptability of Captive Operations
• Ease of business plan changes and additions
Reputation of Domicile
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Where to Consolidate?
Cayman offers compelling advantages:
• Longstanding Captive domicile
• CIMA licensed one of the first captives for Harvard in 1975.
• CIMA is an experienced regulator of captives
• Currently, there are 761 Class B insurers licensed in Cayman
• Licensing process tailored to each captive’s business needs
and operations
• Flexibility in setting required capital levels based on risk
factors specific the underlying business
• Avoids unnecessary costs associated with purely formulaic
capital requirements
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Where to Consolidate?
Sophisticated
local service
providers
Tax
advantages
Effective
regulation
Political
stability
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How to Consolidate?
1. Merger
2. Re-Domestication
3. Portfolio Transfer
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How to Consolidate?
Merger
• Set up New Cayman Entity (“NewCo”) and Merge other
entities into NewCo
Complete solution
o Requires cross border merger
o Simplifies corporate structure
o Tax and accounting complexities.
o
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How to Consolidate?
Re-Domestication
• Re-domesticate one or both entities to Cayman
o
o
o
o
Complete solution
Well established re-domestication process familiar to
Barbados and Bermuda regulators
Potentially very quick
Ultimately merge re-domesticated entities
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How to Consolidate?
Portfolio Transfer
• Create New Cayman Entity and transfer portfolio to
NewCo
No merger required; a purely contractual solution once
NewCo formed and licensed
o Possible regulatory issues regarding winding up of nonCayman captives
o Potentially incomplete solution. Residual liabilities? (e.g.,
liability inadvertently left with former captive)
o a portfolio transfer may require agreement from third
parties
o
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Can the other Captives be sold?
Limited Market
for Captive Sales
Even if bid, price not
likely to be attractive
Captive usually
party to
Affiliated
Agreements
Seller may be
concerned with
transferring contracts
prepared between
affiliates to an
unaffiliated party
Portfolio
Transfer to Third
Party
Possible, but likely time
consuming
Third Party may not
accept complete
portfolio, leaving
captive with business to
administer
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Solution
Re-domesticate
Bermuda/Barbados
Entity to Cayman and
merge
Barbados/Bermuda
Entity with Cayman Entity
upon re-domestication
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Doing Business in Cayman
Regulatory
Requirements
Annual
Meeting/
Corporate
Governance
Requirements
Cooperation/
Coordination
between CIMA
and other
regulators
Accounting
Requirements
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Accounting Considerations
US GAAP - business combinations ASC 805 – acquisition
method.
Even under a merger, an acquirer and an acquiree will need to
be identified for US GAAP reporting.
The other important factor is the acquisition date.
Appropriate accounting treatment.
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The Future in Cayman
Pending Legislation and Regulatory Initiatives
• Portfolio Insurance Company (“PIC”)
legislation
• Class B (iv) regulations
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