Cayman Drafts Incorporated Cell Company Alternative
Wednesday, July 25, 2012
The Cayman Islands Financial Services Authority has announced the launch of
a consultation on a Bill to amend the Insurance Law to allow insurers formed
as segregated portfolio companies (SPCs) to enjoy the same benefits as incorporated
cell companies in other jurisdictions.
Under the change, a new or existing insurance SPC would be able to
incorporate one or more of its segregated portfolios (ie. cells) by establishing
a 'portfolio insurance company' (PIC) under the cell. The PIC would then conduct
the relevant insurance business, instead of the cell. However, while the PIC would be 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.
There are numerous advantages of a PIC, as compared with a cell of an SPC, including:
- The ability to contract with other cells or PICs within the same SPC, facilitating
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; and,
- Because a PIC would be indistinguishable from any other company limited
by shares, it likely would be recognized as a separate legal entity for US
tax purposes, allowing it to make its own tax elections under its own federal
tax identification number.
The Cayman government, with advice from the Financial Services Legislative
Committee, decided that such a model would be more robust in comparison to structures
available in other jurisdictions. The Cayman Islands government believes the
proposals will boost the islands' competitiveness, as the model will provide
cost benefits to insurers, and be more efficient and cost-effective than introducing
standalone incorporated cell company legislation in the Caymans.