The Cayman Islands Financial Services (CIFS) have announced a bill to amend the Insurance Law, so as to allow insurers formed as segregated portfolio companies (SPCs) to enjoy the same benefits as incorporated cell companies in other jurisdictions, is now available for public discussion.

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.

A new or existing SPC insurance company would be able to incorporate one or more of its segregated portfolios (i.e., 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 (cell), the PIC would be a separate legal entity – i.e., an exempted company limited by shares.

These are the particular advantages of a PIC, as compared with a cell of an SPC:

• The ability to contract with other cells or PICs within the same SPC facilitates reinsurance, quota sharing and pooling.
• A separate board of directors permits 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.
• 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.

A copy of the discussion draft of the bill is attached. Questions and comments should be directed to [email protected] by Monday, 13 August 2012

For more information, please contact the Financial Services Secretariat at 345-244-2278 or via email at [email protected].