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

2

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?

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

4

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!

5

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

6SPC with PICs

PIC A

PIC B

PIC C

Core

Participant Participant ParticipantCell A Cell B Cell C

Participants

7

Core

Participant Participant ParticipantCell A Cell B Cell C

PIC A

Participants

Hybrid SPC

8

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

9

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

10

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”

11

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?

12

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?

13

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?

14

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)?

15

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?

16

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?

QUESTIONS?