February 11, 2015

Cayman Insurance Law Amendments Enhance Captive Flexibility

On January 16, 2015, the Cayman Islands published new insurance regulations affecting portfolio insurance companies (PICs). The regulations are designed to provide more flexibility to insurance companies incorporated as segregated portfolio companies (SPCs) and to enhance the prospect of favorable U.S. tax treatment.

As of January 16, 2015, a SPC may incorporate one or more of its segregated portfolios by establishing them as PICs under the SPC. Each PIC, although separately incorporated, may then engage in its own insurance business without acquiring a separate license.

The Insurance Managers Association of Cayman (IMAC) touts numerous advantages to the new rules. IMAC says that a PIC:

  • Will have the ability to contract with other segregated portfolios or PICs within the same SPC
  • May have its own governing board, separate from the boards of other PICs within the same SPC
  • As a separation corporation, will find easier acceptance by parties unfamiliar with segregated portfolios
  • Can more easily transition to stand-alone captive status

IMAC also says that while there remains uncertainty over how the IRS treats an unincorporated segregated portfolio of an offshore insurer, a separately incorporated PIC with its own taxpayer identification number stands a much better chance of being permitted to make its own tax elections.

In making this move Cayman is responding to pressure from the insurance industry and from other industries — notably health care — that heavily utilize captives. Insurance is second only to tourism as Cayman’s biggest industry. And insurance accounts for a big chunk of tourism, with captive governing boards and service providers regularly visiting the islands on captive business.

Earlier this month, IMAC put the count of Cayman-domiciled captives at 759, of which a whopping 34 percent are health care captives. That makes Cayman second only to Bermuda — and a close second at that.

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