A new bill from Cayman has suggested the amendment of the Insurance Law to allow the registration of portfolio insurance companies; and to provide for incidental and connected purposes.
This would in turn allow insurers formed as segregated portfolio companies (SPCs) to reap the same benefits as incorporated cell companies in other jurisdictions.
“Government, with advice from the Financial Services Legislative Committee, is proposing a legislative model that is more robust in comparison with other jurisdictions, because it operates squarely within fundamental and well-understood principles of corporate law,” said a statement from Cayman Islands Financial Services.
A new or existing SPC insurance company would be able to incorporate one or more of its segregated portfolios, or cells, by establishing a portfolio insurance company (PIC) under the cell.
The PIC would then conduct the relevant insurance business, instead of the cell. But, while regulated by the Cayman Islands Monetary Authority, the PIC would not need to be separately licensed as an insurance company. “Unlike a traditional segregated portfolio, or cell, the PIC would be a separate legal entity - i.e., an exempted company limited by shares,” said the statement.
It went on to outline particular advantages of a PIC, as compared with a cell of an SPC, namely; the ability to contract with other cells or PICs within the same SPC facilitates reinsurance, quota sharing and pooling.
A separate board of directors, permitting governance flexibility. For counterparties unfamiliar with cells, a PIC may be more readily accepted than a cell, a PIC can easily transition to a standalone captive.
Finally, because a PIC would be indistinguishable from any other company limited by shares, it likely would be recognised as a separate legal entity for US tax purposes, allowing it to make its own tax elections under its own federal tax identification number.
It is expected that this model would be more efficient and cost-effective than introducing standalone incorporated cell company legislation.
“When finalised, the modifications should increase Cayman’s competitiveness, help contain the costs of doing business, and generate revenues through fees collected from PIC registrations, incorporations and annual returns,” concluded the statement.
