The Insurance And Reinsurance Law Review, 2nd Ed.

I INTRODUCTION

The insurance market in the Cayman Islands is divided into domestic business, captive insurance, special purpose vehicle (SPV) insurance and commercial reinsurance. Domestic business is conducted primarily by companies incorporated in the Cayman Islands, although a number of approved external insurers are also permitted to write insurance (e.g., Lloyd's of London). Some external insurers have manned offices in the Cayman Islands while others operate through local agents.

Captive insurance business may be taken to be all insurance (and reinsurance) business where the premiums originate from the insurer's related business. The captive market began to develop in the late 1970s and there has been a steady natural growth since then. As of 31 December 2013, the total premiums reported were at US$12.6 billion, with US$69.2 billion in total assets.2 The Cayman Islands is the leading jurisdiction for health-care captives, representing 34 per cent of all captives, and is the second largest captive insurance company domicile in the world.3 Medical malpractice liability continues to be the largest primary line of business in the Cayman Islands with 257 companies.4 The other significant class for captives is workers' compensation coverage, which is the second-largest primary line of business in the Cayman Islands with 162 companies.5

SPV insurance is driven principally by the insurance-linked securities market, in particular, the catastrophe bond market. Cayman is the leading market for the formation and licensing of SPV insurers.

The commercial reinsurance market is an area seeing interest and growth. Together with a number of other factors, the introduction of a dedicated reinsurer's licence (Class D) under the Insurance Law has helped facilitate this.

II REGULATION

The body responsible for regulating the insurance and reinsurance business in the Cayman Islands is the Cayman Islands Monetary Authority (the Authority). The Insurance Division of the Authority discharges those responsibilities. Since March 2003, the Authority has been operationally independent of the government. Independence significantly enhanced the ability of the Authority to meet international standards of supervision, accountability, and transparency, and more clearly defined its functions, duties, powers and obligations.

The Insurance Law was first enacted in the Cayman Islands in 1979. Since that time it has been updated periodically to ensure that the jurisdiction maintains a strong regulatory framework. At the end of 2012, the Insurance Law, 2010 (as amended, 'the Law') came into force, bringing a new insurance regulatory regime into effect. The new regime provides for greater regulatory transparency for existing and prospective licensees, and streamlines the regulation of licensed entities.

There are currently no proposals to achieve Solvency II equivalence for the Cayman Islands regulatory regime.

i Insurance licensing

All persons carrying on or desiring to carry on insurance business, reinsurance business, or business as an insurance agent, insurance broker, or insurance manager in or from within the Cayman Islands need to be licensed by the Authority. Insurers are licensed under one or more of the following categories:

a Class A - for carrying on of domestic business or limited reinsurance business as approved by the Authority;

b Class B - for the carrying on of insurance business other than domestic business. Class B insurers are categorised based on net premiums written, where:

Class B(i) - at least 95 per cent of the net premiums written will originate from the insurer's related business;6 Class B(ii) - over 50 per cent of the net premiums written will originate from the insurer's related business; or Class B(iii) - 50 per cent or less of the net premiums written will originate from the insurer's related business; c Class C - 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 that include the issuance of bonds or other instruments, contracts for differences and such other funding mechanisms approved by the Authority. Typically such licensees would be 'catbond insurers' or 'special purpose insurers'; and

d Class D - for the carrying on of reinsurance business and such other business as may be approved in respect of any individual licence by the Authority.

Agents, brokers and managers are required to be licensed as follows:

a 'Insurance agent' licence, for the soliciting of domestic business on behalf of not more than one general insurer and one long-term insurer;

b 'Insurance broker' licence, for arranging or procuring, directly or through representatives, insurance or reinsurance contacts or the continuance of such contracts on behalf of existing or prospective policyholders; and

c 'Insurance manager' licence, for providing insurance expertise to or for Class B or Class C insurers.

ii Organisation of licensees

Except for domestic business, where external insurers are permitted, only an entity incorporated under the Companies Law (2013 Revision) and that has a minimum of two directors (who have been approved by the Authority to be fit and proper persons) may be granted a licence by the Authority.

An insurance broker, insurance manager, a Class A insurer or a Class D insurer is required to have a place of business in the Cayman Islands while a Class B insurer or a Class C insurer (unless it maintains permanently a place of business approved by the Authority) is required to appoint an insurance manager in the Cayman Islands and maintain, at the insurance manager's place of business (or at another location approved by the Authority), full and proper records of the business activities of the Class B insurer or Class C insurer.

iii Licensing requirements

Every licensee is required to carry on insurance business in accordance with its approved licence application and business plan submitted to the Authority (as modified by any subsequent changes as approved in writing by the Authority).

To satisfy the Authority's licensing requirements, an applicant is required to ensure that:

a the persons carrying on the business to which the application relates are fit and proper to be directors, managers or officers in the respective positions;

b it is able to comply with the Law and the Money Laundering Regulations (2010 Revision) of the Cayman Islands;

c the grant of a licence will not be against the public interest of the Cayman Islands;

d it has personnel with the necessary skills, knowledge and experience and such facilities and such books and records as the Authority considers appropriate, having regard to the nature and scale of the business;

e the structure of its insurance group, if any, will not hinder effective supervision; and

f its capital complies with the prescribed level.

iv Capital and solvency requirements

Every applicant for an insurer's licence needs to comply with the prescribed capital and solvency requirements. The prescribed capital and solvency requirements for each category of licence are set out in...