INSURANCE LAW
WHERE ARE WE ONE YEAR ON?
Alan Morris
Cayman Islands Monetary Authority
Paul Scrivener
Solomon Harris
Damian Pentney
PricewaterhouseCoopers, Cayman
Islands
James Trundle
Kane (Cayman) Limited
Cayman Captive Forum – 3 December 2013
TODAY’S TOPICS
 Regulator’s overview of where we are one year on
 Portfolio Insurance Companies and the Class B(iv) Licence
 An auditor’s perspective - Portfolio Insurance Companies
and the new auditor whistle-blowing obligation
 “Hot Topics” – what keeps a captive manager awake at
night?
2
CIMA Regulatory Perspective – New Insurance Law
 New Insurance Law Retrospective Review
 International Regulatory Developments
 IAIS
 NAIC
 IMF
 Solvency II
 CIMA Current Perspective
 CIMA Additional Regulatory Initiatives
3
The Next Logical Step for SPCs
 Cell is not a separate legal entity
 Drawback – intra-cell contracting not possible; uncertain tax
status of unincorporated cells
 Enter the “portfolio insurance company” or PIC!
4
Amending Legislation
 Insurance (Amendment) Law passed on 25 March 2013 but
not yet in force pending amendments to Insurance
Regulations
 Insurance specific – part of the Insurance Law
 An SPC can incorporate one or more of its cells by
establishing a Portfolio Insurance Company (PIC)
 PIC is an exempted company beneath a cell and, generally,
“replaces” the cell
5
Participant Participants
Participant Participant
Core
Cell A
PIC A
Cell B
Cell C
PIC B
PIC C
6
Participant Participants
Participant Participant
Core
Cell A
Cell B
Cell C
PIC A
7
Advantages of a PIC
 Unlike a cell, a PIC is a separate legal entity
 Contracting and risk pooling between cells and core
 Greater certainty of IRS treatment
 Easier for counterparties to understand
 Board representation at PIC level (c.f. for a cell)
 Easier transition to stand-alone captive
8
CLASS B(IV) LICENCE
 Provided for in insurance (Amendment) Law, 2013 – not yet
in force
 Why do we need a B(iv)?
 Effectively, breaks down the “old” B(iii) into B(iii) and B(iv)
 B(iii) – 50% or less of net written premium is related
business and annual net earned premiums are less than
US$20 million
 B(iv) – 50% or less of net written premium is related
business and annual net earned premiums are equal to or
greater than US$20 million
9
Insurance Law 1 year on – an Auditors view
•
Portfolio Insurance Company’s (PICS)
-
Scope of audits
-
Specific accounting considerations
•
The transitional period
•
Auditor whistle blowing obligations
•
-
the requirements
-
tipping off?
-
the implications for auditors
The “Management letter”
10
HOT TOPICS – Solvency & Capitalization
Why is MCR and PCR for a single parent captive set at a
modest US$100,000 bearing in mind the common 5:1 premium
to capital ratio?
What is the process for transitioning between different classes
of licence having regard to changing levels of unrelated
business and what is the timeframe for meeting new capital
and solvency requirements?
Section 7(2) of the Regulations refers to “enhanced capital
requirements”. Could this be clarified?
11
HOT TOPICS – Solvency & Capitalization
Which capital requirement is used when assessing what is
available for an entity to pay out as a dividend?
If an insurance entity has subsidiaries both on and off island,
does CIMA look at the consolidated group when assessing
solvency?
12
HOT TOPICS – SPCs & PICs
If an SPC is writing unrelated business and holds a Class B(iii)
Licence, is the solvency test applied on a consolidated basis or
on a per cell basis?
Perhaps an SPC has 4 inactive cells, 2 writing related business
and one writing unrelated business, with the latter
representing over 50% of overall premium. How would this be
handled?
Is it possible for an SPC to hold two different licences?
What are the practical applications of PICs and how will
solvency requirements be applied to them? Do the audit firms
anticipate any changes to the audit approach for PICs as
compared to SPCs?
13
HOT TOPICS – Reinsurance & the Class B (iv)
What has been the reaction from the reinsurance industry to
the new Class D license and how is Cayman working to attract
reinsurance companies?
Is there any scenario where a single parent captive would be
licensed and regulated as a Class D?
What will the licensing fee be for a Class B (iv)?
14
HOT TOPICS – Class C – the SPV
SPV formations appear to have fallen off year on year, whereas
Bermuda is seeing an increase in this business. What are the
panel’s thoughts on why this is and what the future holds in
this area?
15
HOT TOPICS - General
Are further changes to the regulation of Class B and Class C
Licensees anticipated given the ongoing developments in
international regulation?
There has been a significant increase in CIMA inspections in
the last year or so. What findings are CIMA able to share as
areas for captives and managers to focus on?
16
QUESTIONS?