We are pleased to bring you the summer 2022 edition of Conyers Coverage, the Cayman Islands insurance newsletter.
The Cayman Islands insurance and reinsurance industry has had a strong start to the year and Conyers is honoured to be at the forefront of what is an exciting period of growth and change for the industry locally.
We cover a lot of ground in this edition. We discuss some key themes emerging in the Cayman Islands (re)insurance market from a regulatory perspective as well as some developments, deal highlights, and new legislation, including some interesting updates from our litigation colleagues. We round off the update by introducing you to another member of our growing team who offers fiduciary and corporate services supplementary to Conyers legal services, as well as sharing some pictures of our recent volleyball tournament!
We welcome your comments or article suggestions and please don’t hesitate to get in touch if you would like to participate in future editions of Conyers Coverage.
Enjoy the read and have a great summer!
New Rule and SOG on Investment Activities for Insurers: Five Items to Consider Now
In February 2022 the Cayman Islands Monetary Authority introduced a new Rule and Statement of Guidance on Investment Activities for Insurers (“Rule” and “SOG”) to bring our regulatory framework relating to investments for insurers (which term includes reinsurers) up to date with Insurance Core Principle 15 developed by the International Association of Insurance Supervisors, of which the Authority is an active member. The Rule and SOG come into effect at the end of February 2023 and will apply to all insurers, with more onerous requirements for Class B(iii) and Class D insurers. We have distilled the requirements down to the five key elements insurers will need to action as soon as practicable to ensure compliance.
It’s necessary from time to time to take a step back to review an insurer’s broader legal, regulatory and compliance landscape and reset and restructure its compliance procedures where required. We briefly set out below a few topical items that may be worth some consideration, and even remediation.
On Tuesday 28 June 2022, the Insurance (Amendment) Act 2022 (the “Amendment”) was published in the Official Gazette having been brought as a bill before the Cayman Islands Parliament during its third meeting of the 2021-2022 session. The Amendment is targeted at giving a legislative footing for the first time in the Cayman Islands to ‘capital redemption contracts’ (also known in certain other jurisdictions as ‘funding agreements’).
The Cayman Islands recently introduced measures to further improve its technical compliance with the 40 Financial Action Task Force (“FATF”) recommendations relating to anti-money laundering and countering the financing of terrorism (“AML/CFT”).
The ongoing convergence of the private equity and insurance sectors has recently led private equity managers to innovate in their investment structures offered to investors – and in particular to insurers. From a Cayman Islands perspective one of the most notable trends in this regard has been the emergence of ‘rated note feeders’ being established as Cayman Islands limited liability companies (LLCs) or exempted limited partnerships (ELPs). These rated note feeders bridge the accessibility gap between insurers and private equity funds and offer insurance companies an opportunity to diversify their investment portfolios with the stellar returns that private equity brings, while smoothing certain regulatory considerations that have in the past been a factor in considering such investments.
Conyers is honoured that so many clients entrust us to support them with insurance legal and regulatory services. Our team act on the majority of all new insurance licensees established in the Cayman Islands (similar to our Conyers colleagues’ position in the Bermuda market). One recent significant project has been the Talcott / Principal Financial Group transaction that has recently closed.
More details are in the links below.
Conyers assisted with the licensing of Talcott’s Cayman Islands based insurer which has reinsured approximately $25 billion of liabilities, comprising $16 billion and $9 billion of retail fixed annuity and secondary guarantee universal life insurance liabilities, respectively, from Principal.
This transaction is indicative of the continued grown and positive momentum the Cayman Islands reinsurance industry is experiencing.
Later this year amendments to Part V of the Cayman Islands Companies Act (the “Companies Act“) will be introduced to commence a new restructuring officer regime available to companies in financial difficulty. Under the new regime, it will be possible to petition the Cayman Court to appoint “restructuring officers” and, from the time of filing, for the company to take the benefit of an automatic moratorium (i.e. akin to a US Chapter 11 stay or English administration moratorium). Once initiated, with the benefit of breathing space and expert guidance, the relevant company may endeavour to promote and implement a restructuring (e.g. via a scheme of arrangement, a parallel process in a foreign jurisdiction or a consensual compromise).
A fundamental principle of insolvency law in the Cayman Islands is that upon the commencement of a liquidation of a company, a line is drawn in the sand and the assets of an insolvent company should be distributed on a pari passu basis (e.g. each unsecured creditor should share equally in the available assets of the company). While subject to some exceptions (like any good fundamental principle of law), the concept that all unsecured creditors should be on “equal footing” is the basis for a wide array of insolvency legislation and case law. From voidable preference legislation to laws permitting the avoidance of undervalue dispositions, from the extensive investigative powers bestowed upon Court-appointed liquidators to the particularised proof of debt process, great care has been taken to ensure that the pari passu principle is respected to the extent possible.