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Conyers Coverage
A warm welcome to our latest edition of Conyers
Coverage. It’s been a dizzying year to date for the Cayman
Islands (re)insurance industry, so it’s time for some updates
and insights.
The momentum is real and the pipeline is strong, with a
significant increase in interest following the Cayman Reinsurance
Roundtable in New York in January and the Refocus conference in
February. I believe we are at an inflection point in the
jurisdiction and I’ve taken some time to reflect on the factors
driving this “virtuous circle“. Philippa touches
on more of the micro factors as to why reinsurers are ramping up in
Cayman and the rest of the team have weighed in with a host of
updates on new rules and regulations including important deadline
reminders and other industry news and views. We also have some
topical updates from our litigation and regulatory colleagues and
you’ll find out more about some new team members and service
offerings at Conyers.
If you’d like to know more on any of the topics discussed or
learn further about what Cayman has to offer, please do reach out
– we’re always happy to chat.
Reflections on the Cayman Islands (Re)insurance
Market – a “Virtuous Circle”
Derek Stenson, Partner
A virtuous circle describes a scenario whereby new and existing
factors are included and discarded in a continuous system of
improvement and self-reinforcement. Such a positive confluence of
various factors continue to drive growth in the Cayman Islands
insurance and reinsurance market. It’s an exciting time for the
jurisdiction, so I’m taking a moment to reflect on the primary
drivers of this “virtuous circle” we are
experiencing.
What’s fuelling this “virtuous circle”, you ask?
[Read on here]
A Trailblazing Surplus: Knighthead
Leads the Way
Derek Stenson, Partner and Nicholas Ward, Associate
Conyers, working alongside Piper Sandler & Co. as placement
agent and US counsel Sidley Austin, advised Knighthead Annuity
& Life Assurance Company (“Knighthead”) in connection
with Knighthead’s issuance of up to US$50,000,000 of Series A
Fixed-Rate Prescribed Capital Notes due 15 December 2042 (the
“Notes”), paving the way for other insurers licensed by
the Cayman Islands Monetary Authority (“CIMA”) to raise
capital by similar means and for similar purposes.
This was a landmark transaction, marking the first time such
instruments have been issued by a Cayman Islands domiciled entity
and the first time CIMA has been asked to consider and approve such
a transaction involving one of its licensed insurers. Moreover, it
builds on the introduction to the Cayman Islands licensed
insurer’s toolkit last year of ‘capital redemption
contracts’ – see our previous briefing paper here.
The Notes – rated by both A.M. Best and Kroll Bond Rating
Agency, LLC – have a similar character and bear terms
substantially similar to “surplus notes” popular for a
long time in the US insurance market. Such instruments may, under
statutory accounting principles, be classified as equity on the
basis of their subordinate nature and are characterised in
particular by a requirement to obtain approval from the relevant
regulatory body to make each and any payment of principal or
interest in the case of the Notes.
It is expected that the proceeds from this Notes issuance will
be used for general corporate and working capital purposes, to
support growth and the fulfilment of Knighthead’s strategic
objectives – potentially including the assumption of
additional reinsurance and merger & acquisition activity
– without dilution of existing equity holders.
Five Reasons Reinsurance is Ramping Up in
Cayman
Philippa Gilkes, Counsel
Whilst traditionally the Cayman Islands has deservedly been
recognised as a leading captive jurisdiction, around 70% of all
licences issued by the Cayman Islands Monetary Authority
(“CIMA”) in recent years have been for commercial or
affiliate reinsurers, with private equity groups, traditional
reinsurance and insurtech increasingly selecting Cayman for the
establishment of side cars and reinsurance platforms. The
confidence in the jurisdiction has been evidenced by the entry of
larger players in the life & annuity space, including RBC
Re’s redomicile from Barbados to Cayman in 2021 and Talcott
Re’s establishment of a reinsurer which effectively doubled the
life business in Cayman in2022. CIMA’s release of a regulatory
policy on requirements for licensing a Class D reinsurer last month
further cements the expectation that the growth of this licence
class will continue on a strong trajectory in the coming years.
The ideal jurisdiction of domicile for a new reinsurer is driven
by a multitude of factors and there is certainly no one size fits
all. Relevant considerations in selecting the most beneficial
jurisdiction include the goals of the client and the interests of
their stakeholders such as investors and cedants, along with a wide
variety of other variables, including size of the sponsor’s
balance sheet, type of business proposed and jurisdiction from
which cessions will be sourced including the requirements of the
regulators of the targeted cedants and rating considerations (if
any), among others.
We wanted to highlight some of the reasons we are seeing clients
consider Cayman to be not only a viable option, but a premier
jurisdiction for establishing a reinsurer platform. [Read more here]
Capital Contributions – Banana Peel,
Beware!
Frank Farrell, Associate
Insurers rarely consider that funds injected into them by a
shareholder could potentially be clawed back in certain scenarios,
but in circumstances where capital contributions are made to a
company without receiving a formal allocation of shares in return
or where the cash injection is not properly characterised in
writing, that is exactly the risk taken!
Our practice regularly encounters scenarios where shareholders
in Cayman Islands companies have made capital contributions in the
absence of any formal issuance of shares or otherwise documenting
the terms of the cash injection. In this note we highlight the
steps that should be taken to avoid any potential pitfalls inherent
in this approach. [Read more]
Debunking Common Cayman Clichés: Episode 1
– CIMA
Philippa Gilkes, Counsel
Part and parcel of practising law in the Cayman Islands
regularly involves dispelling commonly held but mistaken myths
around Cayman as an international jurisdiction. One such
misconception which inexplicably persists in some quarters is that
the Cayman Islands Monetary Authority (“CIMA”) as a
regulator is a closed shop. Whether this view stems from publicity
on Cayman’s grey-list status with the FATF (positive news on
that in “Announcements” below), or old tropes in respect
of the lack of transparency in the Cayman Islands, it couldn’t
actually be further from the truth. [Read on to discover why here]
Meet the Team: Róisín
Liddy-Murphy
Róisín Liddy-Murphy is a Counsel
and Head of Regulatory & Risk Advisory (Cayman). She joined
Conyers in 2018 and has more than 16 years’ experience
representing clients on a broad range of multi-jurisdictional and
complex litigation proceedings with a particular focus on company,
insurance, insolvency, banking, commercial and regulatory
matters.
Róisín specialises in regulatory advisory,
investigations and disputes. Her expertise includes advising on
corporate governance frameworks and internal policies and
procedures, administrative fines, regulatory enforcement and
settlements, Cayman Islands Monetary Authority (“CIMA”)
inspections and potential anti-money laundering (AML) and sanction
exposure, including advising on regulatory requirements for Cayman
licensees, mock regulatory AML reviews and mandatory information
exchange requirements. She has a particular focus on advising
clients on sanctions, licence applications and asset freeze
requirements that impact Cayman entities. Róisín
often represents clients in Court and in investigations before the
Ombudsman involving data protection breaches along with advising
clients on confidentiality laws and information disclosure requests
from regulators.
Top 3 Things
to Know on Regulatory Updates for Insurers
Róisín Liddy-Murphy, Counsel, Head of Regulatory
& Risk Advisory (Cayman)
- Requirement in New Rule on Corporate Governance for
audit committee and adoption of code of conduct, conflict of
interests policies
In April 2023, CIMA issued/replaced a number of its Rules and
Statements of Guidance. Notably, CIMA issued a Rule on Corporate
Governance (the “Rule”) for all regulated entities, which
replaces the Rule on Corporate Governance for Insurers (2016) along
with the Statement of Guidance on Corporate Governance (2016). The
changes proposed are largely not substantive for insurers where
they will already have sophisticated governance programs in place
in light of the existing Rules and Statements of Guidance which
already applied to (re)insurers. Notable revisions to the
application of the Rule to (re)insurers include the mandatory
requirement for an audit committee to be appointed and policies to
be adopted on conflict of interest and codes of conduct and
procedures including resignation, termination and disqualification
procedures for Directors and Senior Management. The Rule was
gazetted in April but will not come into effect until 14 October
2023. - Documentation of reinsurance strategy to be revisited
by licensed insurers
CIMA recently revised the Rule and Statement of Guidance on
Reinsurance Arrangements (“Reinsurance Rule & SOG”)
to bring such up to date with legislative changes, international
standards and evolving industry trends and to mitigate risks to the
insurance sector associated with money laundering, terrorist
financing and/or proliferation financing. The Reinsurance Rule
& SOG seek to ensure that insurers implement a reinsurance
programme and strategy that is appropriate to the size, nature,
scale and complexity of their business. The strategy may be
detailed in the Business Plan of a licensee and must include the
detailed implementation of the reinsurance strategy in terms of
coverage, limits, retentions, layers, signed lines and markets
used. It should reflect the (re)insurer’s risk appetite,
comparative costs of capital and liquidity positions determined in
the reinsurance strategy and be documented appropriately in
accordance with the Reinsurance Rule & SOG requirements.
Notably, the reinsurance strategy must require that reinsurance
contracts with a duration greater than 12 months or with an
automatic renewal term are reviewed both annually and when there
are have been certain changes made to the contract. CIMA must also
be notified of material changes to the reinsurance strategy. The
Reinsurance Rule & SOG was gazetted in May 2023 and will come
into effect on 27 May 2024. - New Beneficial Ownership Requirements to be
introducedThe Beneficial Ownership Transparency Bill 2023 (the “Bill)
was released in April 2023 for industry consultation and
consolidates the beneficial ownership register provisions of the
Companies Act, the Limited Liability Companies Act and the Limited
Liability Partnership Act. It brings limited partnerships and
exempted limited partnerships into scope of the reporting
requirements. The Bill removes most of the exemptions from
compliance under the current beneficial ownership legislation by
replacing them with “alternative routes to compliance”.
Entities “licensed under a regulatory law”, such as
(re)insurers licensed with the Cayman Islands Monetary Authority
will continue to be exempt as an alternative route to compliance
under the proposed changes. (Re)insurers will no longer be required
to file a written confirmation of exemption and must instead submit
the contact name of a person in the Cayman Islands who will be
responsible for providing a competent authority with the requisite
beneficial ownership information upon request. The Bill is expected
to be introduced next month.
Cayman Regulatory & Risk Advisory Review
[Jan-April 2023]
The past few months have been a particularly active time in
Conyers’ regulatory team, most notably relating to sanctions
advice, duties of confidentiality, breach notices and
investigations concerning data protection, queries regarding
beneficial ownership register requirements and upcoming changes to
same and economic substance reporting and compliance notice
requirements. As discussed further in the Cayman Regulatory &
Risk Advisory Review, there has been a wave of new rules and
statements of guidance from CIMA now in effect (and coming into
effect) covering areas such as outsourcing, record retention,
cybersecurity, internal controls and corporate governance.
Assisting our clients to ensure ongoing compliance and
safeguarding against enforcement actions (to include potential
administrative fines) has never been more of a priority. Download
the full review here.
Segregated Portfolio Companies’ Silver
Anniversary
Erik Bodden, Partner, Co-Head of Cayman Islands Litigation
& Restructuring,
Jonathon Milne, Partner, Co-Head of Cayman Islands Litigation &
Restructuring,
Spencer Vickers, Partner
In a series of recent judgements, the Cayman Islands Grand Court
has celebrated the 25th anniversary of the introduction
of the segregated portfolio company (“SPC”) regime in the
Companies Act by confirming the strict separation of assets and
liabilities between segregated portfolio (“SP”) as the
defining feature of SPCs in the circumstances where an SP and/or
the SPC itself were in distress.[Read more]
Q&A with Conyers
Financial Institutions Group
Jarladth Travers, Head of Conyers FIG (Cayman)
Limited,
Mark Mugglestone, Vice President at Conyers FIG (Cayman)
Limited,
Maddison Billinghurst, Compliance Officer
Can you provide some background on Conyers Financial
Institutions Group (“Conyers FIG”)?
Conyers FIG is an affiliate of Conyers law firm through
which we provide a range of fiduciary services that are
complementary to the Conyers legal offering. These services include
the provision of independent directors, anti-money laundering
(“AML”) services, FATCA & CRS services and board
support services to entities operating within the insurance,
investment funds and structured finance industries. Our team is
made up of highly qualified individuals with many years of
practical experience working in the Cayman Islands financial
services and regulatory sectors.
What are the benefits of appointing an independent
director to the board of a client entity?
Appointing an independent director is a natural response to
the expanding Cayman regulatory environment and the increased
importance placed on corporate governance by regulators and
stakeholders. The regulatory regime faced by Cayman entities has
expanded significantly over recent years and CIMA is under
increased pressure to pursue enforcement action for non-compliance.
Appointing a director with relevant experience in these areas will
demonstrate a commitment to regulatory adherence and provide
practical assistance with navigation of any complexities that
arise.
Could you expand on the increased importance that
regulators are placing on corporate governance
practices?
CIMA recently released a series of new and updated
regulatory rules and guidance on corporate governance for regulated
entities. The requirements and guidance are wide ranging and aim to
ensure that boards of directors of regulated Cayman entities are
comprised of individuals with a diversity of skills and experience
who are able to exercise independent judgement with respect to the
operations of the entity. Conflicts of interest at the board level,
board meetings and appropriate minute keeping are also focus
points.
In addition to providing independent directors, are
there any other focus areas of the corporate governance rules and
guidance where Conyers FIG can assist?
Board meetings and appropriate minute-taking is a major
focus point of CIMA. We have a team of board support specialists
who can assist clients in arranging, holding and appropriately
recording the minutes of board meetings to the level and standard
expected by CIMA.
Are there any other topical areas of note that Conyers
FIG have recently been assisting clients with?
AML has become a hot topic for any entities in the Cayman
Islands that are conducting relevant financial business. The AML
regulations are complex in nature and any incorrect application
carries risks for the client entities and designated AML officers.
Out of an abundance of caution, many clients have taken the prudent
view to outsource the AML officer function to Conyers FIG where we
have qualified specialists who have the capacity, knowledge and
training to fulfil the requirements of the role to the required
standard. In addition, we have also experienced recent demand for
ancillary AML services such as policy holder and investor screening
as well as independent AML audits.
To learn more about Conyers FIG, get in touch with your
regular Conyers contact or a member of the FIG team here.
Introducing Conyers Immigration Practice
As many of our clients know only too well, complying with
frequently changing immigration requirements is a challenging but
unavoidable aspect of doing business and living in the Cayman
Islands. For companies establishing a business presence, or
individuals wanting to make Cayman a permanent or semi-permanent
home, it can be a particularly daunting experience.
In keeping with our commitment to provide the best possible
service to our clients, we are pleased to announce that we now have
an attorney who specialises in all aspects of immigration law.
Christopher Eakin joined our Cayman Office in January and brings
a unique skillset having worked for the Cayman Islands Government
at a senior level in the field of immigration for over twenty
years. Having had a hand in the formulation of immigration policy,
including legal and legislative aspects, he knows not just the law
but the policy intent behind it and has first-hand experience of
how the requirements are interpreted and applied by the immigration
authorities. The value of this combination of expertise cannot be
underestimated.
Christopher Eakin, Attorney
While Christopher is able to assist clients with all matters
relating to immigration – from work permits to permanent
residence and the right to be Caymanian – there is one
residency category that we would like to highlight in this edition
of Conyers Coverage that is of particular relevance to the
insurance management and reinsurance industry.
The Residency Certificate (Substantial Business Presence) was
introduced by the Cayman Islands Government in 2012 in a bid to
attract investment in certain sectors of the financial services
industry. The facility is available to persons who own a minimum of
10% of the shares in an approved category of business or are to be
employed in a senior management capacity within such a business. A
holder is entitled to work in the business for renewable periods of
25 years and may be accompanied by dependants. This facility has
been popular with senior personnel in the insurance management and
reinsurance sectors given that it overrides the need for work
permits and thereby provides greater business certainty.
For full details of the Residency Certificate, please see our brochure and if you would like to discuss
further please contact Christopher directly at Christopher.Eakin@conyers.com.
Announcements
FATF Delisting
Exciting news for the jurisdiction following the recent
confirmation that the Cayman Islands has now satisfied its FATF
action plan and is anticipated to be delisted from the FATF’s
“grey list” imminently. More information on the
anticipated de-listing is available here: Cayman Satisfies FATF Action Plan; Onsite Visit
Authorised
CIMA Appointment
The Cayman Islands Monetary Authority has appointed Kara Ebanks
as Head of its Insurance Supervision Division. Kara has served as
Deputy Head since April 2021 and is well-known by the industry.
Kara – many congratulations from all of the team at
Conyers and all the very best in the new role!
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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