Regulatory Policy - Licensing - Class C Insurance Companies (May 2019)

Summary

This is a Cayman Islands Monetary Authority (CIMA) Regulatory Policy dated May 2019 that sets out the criteria CIMA applies when assessing applications for a Class C insurance licence under section 4 of the Insurance Law, 2010. Class C insurers are reinsurance vehicles whose obligations are limited in recourse to, and fully collateralised by, their funding sources (e.g. issuance of catastrophe bonds, sidecars, collateralised reinsurance, insurance-linked securities). The policy applies to persons applying for a Class C licence to carry on such business in or from the Cayman Islands, and to Class C licensees once licensed.

Licensing Procedure and Assessment Criteria

• Licensing procedure: Application form, fees, licensing checklist, referral to CIMA's Management Committee for complex applications, or delegated processing for non-complex Cat bond vehicles.
• Fitness and propriety: Assessment of the fitness and propriety of directors, officers, and controllers.
• Business plan: Requirements for business plan content.
• Funding and collateral arrangements: Full funding/collateralisation, limited recourse, bankruptcy remoteness, and subordination of investor claims.
• Trustees and cedents: Requirements for indenture/reinsurance trustees and cedents.
• Disclosure and records: Disclosure obligations and record keeping requirements.
• Audited financial statements: Required, with a possible waiver.

Ongoing Obligations

• Material changes during application: Applicants must notify the Authority of material changes during the application process.
• Closing documentation: Licensees must provide closing documentation after the reinsurance agreement is executed.
• Changes in directors or controllers: The Authority, investors, and the cedent must be notified of changes in directors or persons holding control.
• Collateral shortfalls: Significant collateral shortfalls must be reported.

The policy should be read together with the Insurance Law, related regulations (e.g. Insurance (Applications and Fees) Regulations, Capital Regulations), and other CIMA regulatory measures such as the Fitness and Propriety policy and outsourcing guidance.

Key obligations

• Applicants must submit a completed application form together with all information required under the Law and the Insurance (Applications and Fees) Regulations, pay the prescribed application fees, and accompany the application with the Authority's licensing checklist for Class C insurers.
• Applicants must immediately inform the Authority of any material changes to the information or documentation provided during the application process.
• Applicants shall maintain a minimum of two directors and, in the event of a change in directors, must notify investors and the cedent and provide the Authority with information on that notification and any concerns raised.
• Any change of persons holding control, directors, or persons in managerial positions must be approved by the Authority before being made.
• Any changes to the business plan or offering circular must be notified to, or approved by, the Authority as specified in the relevant regulatory procedure on business plan changes.
• Applicants must demonstrate that their insurance obligations are, and remain, fully funded/collateralised, limited in recourse, bankruptcy-remote from the cedent, and that investor claims are subordinated to the cedent's claims.
• If the value of collateral assets falls below the value of expected reinsurance recoveries or aggregate liabilities by 5% or more, licensees shall forthwith inform the Authority.
• Applicants must provide closing documentation (offering circular, reinsurance trust agreement, indenture agreement, declaration of trust, or equivalent funding/collateral instrument documentation) to the Authority within 30 days of execution of the reinsurance agreement.
• Where there are no significant changes since submission of the application, the insurance manager or directors must confirm to the Authority at final closing that there are no material changes to previously submitted draft documentation.
• Where material changes occur after licensing but before submission of closing documentation, the licensee must follow the Law and relevant regulatory measures to notify or obtain approval from the Authority.
• Licensees must submit audited financial statements unless granted an exemption (audit waiver) by the Authority.
• Applicants must maintain and be able to demonstrate secure storage and accessibility of books and records, including licensing documentation, key personnel details, funding mechanisms, claims handling and outsourcing records.

Applies to

Class C insurance companies, reinsurance applicants, insurance managers, segregated portfolio companies, indenture trustees, reinsurance trustees

Deadlines

• within 30 days of the execution of the reinsurance agreement: Applicants must provide closing documentation (offering circular, reinsurance trust agreement, indenture agreement, declaration of trust or equivalent) to the Authority.
• forthwith: Licensees must inform the Authority if the value of collateral assets falls below the value of expected (re)insurance recoveries or aggregate liabilities by 5% or more.
• 5-10 business days: Indicative processing timeframe (per Appendix E2 of the Regulatory Handbook) for the insurance division to process and issue new Class C licences for non-complex Cat bond vehicles.
• 5-7 business days: Indicative processing timeframe for repeated/analogous Cat bond vehicle licences.