Statement of Guidance - Professional Indemnity Insurance (August 2016)

Summary

This is a CIMA Statement of Guidance, dated August 2016, setting out the minimum standards that certain licensees should follow when obtaining and maintaining professional indemnity (PI) insurance to cover civil liability claims arising from their business activities.

Who It Applies To

• Trust companies, insurance brokers/managers/agents, mutual fund administrators, securities investment businesses, corporate services providers/company managers, and corporate and professional directors licensed under the relevant Cayman Islands laws.
• Mutual fund administrators and directors: For these licensee types, following the guidance is expected as best practice rather than a strict legal requirement, since PI insurance is not mandated for them under their respective laws.

Minimum Policy Features

• Minimum cover limits: Generally at least $1,000,000 per claim and $1,500,000 in aggregate, or higher amounts calculated by reference to turnover or assets under management for some licensee types.
• Other policy terms: Appropriate excess levels, broad scope of indemnification, limited exclusions, coverage of representatives and third-party agents, automatic reinstatement, legal costs coverage in addition to the limit, fraud/dishonesty coverage, retroactive cover, and run-off cover for retiring persons.
• Insurer strength: Expectations around selecting financially strong insurers (e.g., minimum A.M. Best rating of B+).
• Alternative arrangements: Licensees may use alternative risk arrangements (such as group coverage, guarantees, or self-insurance) if approved by the Authority as equivalent to PI insurance.

Ongoing Obligations

• Recordkeeping and review: Licensees should retain records supporting their adequacy assessments and periodically review coverage.
• Certification: Obtain an annual insurance certificate.
• Reporting: Report specified information to CIMA annually.
• Notification: Notify CIMA of certain triggering events (new uninsured business lines, failure to renew coverage within a set period, or cancellation of coverage).

As a Statement of Guidance, it reflects CIMA's expectations rather than binding statutory requirements, though it operates alongside statutory minimum coverage provisions in certain governing laws which take precedence where applicable.

Key obligations

• Licensees should at all times maintain adequate PI insurance (or equivalent alternative arrangements), proportionate to the size, nature and complexity of their business, based on a risk assessment.
• PI insurance/alternative arrangements should cover claims arising from conduct of the licensee, its current/former officers and employees, and third-party agents, service providers or consultants working for it.
• Licensees should maintain a minimum PI insurance limit of at least $1,000,000 per claim and $1,500,000 in aggregate, or a higher limit calculated using specified turnover or assets-under-management formulas where applicable.
• Policies should include minimum features: appropriate excess/deductible, broad scope of indemnification, limited exclusions, coverage of all representatives, at least one automatic reinstatement, legal costs in addition to the limit, fraud/dishonesty/infidelity cover, retroactive cover, and run-off cover for retiring persons.
• Licensees should maintain records documenting how PI insurance adequacy determinations are made.
• Licensees should review the adequacy of their PI insurance coverage at least once every two years.
• Licensees should select insurers with a sound financial strength rating (minimum A.M. Best rating of B+ or equivalent, where rated) and monitor this at least at each renewal.
• Licensees should ensure the insurer issues an annual certificate of insurance specifying coverage amount, expiration date, and exclusions/limitations.
• Licensees must provide the Authority with a copy of the current certificate of insurance or evidence of coverage upon written request at any time.
• Licensees using alternative arrangements to PI insurance should obtain the Authority's written approval, supported by specified information about the arrangement.
• Licensees should confirm annually in writing (or via attachment to annual returns) to the Authority that PI insurance or an appropriate alternative arrangement is in place, including specified details (insured name, policy number, coverage amount, excess, retroactive date, insurer details, exclusions, expiry date, etc.).
• Licensees should notify the Authority in writing if they start a business line without PI insurance cover, if cover cannot be obtained within 28 days of the renewal date, or if cover is cancelled.
• Licensees should promptly notify their insurer of potential claims and notify the Authority of material claims that may arise.

Applies to

Trust Companies, Insurance Brokers, Insurance Managers, Insurance Agents, Mutual Fund Administrators, Securities Investment Businesses, Corporate Services Providers, Company Managers, Corporate and Professional Directors

Deadlines

• at least once every two (2) years: Licensees should review the adequacy of PI insurance coverage at least once every two years.
• annually: Licensees should ensure the insurer issues an annual certificate of insurance, and licensees should confirm annually in writing (or via annual return attachment) to the Authority that PI insurance or an appropriate arrangement exists.
• within 28 days of the renewal date: Licensees should notify the Authority in writing if PI insurance cover or other appropriate arrangement cannot be obtained within 28 days of the renewal date.
• upon renewal of insurance coverage: Licensees should monitor and review their insurer's financial strength at least upon renewal of insurance coverage.