Solomon Harris can advise on and arrange the formation and licensing of all types of insurance companies. The firm will also arrange introductions to suitable insurance managers licensed by the Cayman Islands Monetary Authority (CIMA) to provide local insurance management services.
Reasons for Forming a Captive
Some of the reasons for forming a captive insurance company are:-
- To minimize costs by the elimination of a large percentage of traditional insurance company overhead.
- To reduce risk by selecting only quality insureds known to each other (as in the case of some medical malpractice association captives).
- To insure risks which would otherwise be uninsurable or cost prohibitive.
- Access to the re-insurance market.
- The reduction of Government regulations and restrictions by seeking out a favorable jurisdiction for the registration of the company.
- The potential reduction of taxes by domiciling the company in a low tax jurisdiction.
Formation of Cayman insurance Companies
An insurance company is formed in the same way as an exempt company, except that prior to incorporation the promoters of the company must apply for and receive approval from CIMA for the issue of the appropriate insurance licence.
There are three different classes of licence available as follows:
- Class “A” is applicable to companies insuring domestic risks from within the Islands
- Unrestricted Class “B” enables the licensee to carry on all types of insurance business with any insured other than domestic business from within the Islands
- Restricted Class “B” restricts the licensee to carrying on business with its parent or such persons as are allowed by CIMA. This type of license is generally only used in a “pure captive” situation, that is where the insurance company writes policies only for its parent company or for members of a closely held group. Applications are examined and reported upon by CIMA which is responsible for the supervision of Cayman insurance company activities
The Cayman Islands are becoming the jurisdiction of choice for the registration of captive insurance companies for the following reasons:-
- Less restrictive insurance regulation
- Freedom from exchange control
- Relatively short lead time to establishment
- Modern insurance laws
- Abundance of banking, legal and accounting expertise particularly in the area of healthcare, where Cayman is the world’s leading domicile>
Documents required to be submitted on application for a licence include:-
- Proposed Memorandum and Articles of Association (by-laws) for the company. Articles of Association must state that the company is not empowered to issue shares in bearer form
- Bank references on the promoters and proposed owners of the company, together. with evidence that insurance expertise is available, to the company
- Evidence that none of the shareholders, directors or officers of the company has a criminal record
- A business plan. This states the proposed business activity of the company, stating the make-up of ownership and management, the type and expected volume of business to be written, details of any re-insurance agreements to be entered into, as well as financial projections. The business plan provides a yard-stick for the annual “certificate of compliance”, which is a statement, that the activities of the company have been carried out in accordance with the original business plan submitted, allowing for any subsequent amendments approved by CIMA. The business plan will also normally include, an analysis of the past loss history of the business to be written, demonstrating that the proposed business is financially viable
- Evidence that capitalization is available
- Confirmation from the companys auditors and from its local insurance manager that they are willing to accept the appointment
The company must submit annual accounts and must adhere to the parameters established in its business plan or receive prior permission from CIMA for any changes. On review of the accounts CIMA has the discretion and authority to require the company to moderate its activities or to require the introduction of further capital. No changes in ownership, management or control may take place without prior approval.