By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
For those familiar with the slow, comfortable pace of things in Cayman, it's a funny question to ask when, or even if, the new 2010 revisions to the Caribbean nation's Insurance Law will go into effect.
The new rules have gone through legislative assembly but still need the approval of the governor in cabinet before they go into effect.
"Until it actually happens, you can't say definitely," said Kevin Butler, partner in the Cayman office of law firm Conyers Dill & Pearman, when asked when this might occur. There?s plenty of support for the new law, Butler also said.
The amendments? biggest impact could be the reclassification of types of insurers, felt the most by reinsurers and by the special-purpose vehicles set up for catastrophe bonds.
For reinsurers, the new rules could have the effect of making Cayman an attractive option for operations. Before, Butler said, reinsurers fell into the generic Class A and "there wasn't really any framework" for their regulation. Bermuda, Cayman's competitor in the Atlantic, on the other hand, has a very "transparent" system in place for reinsurers with good guidance notes and regulations.
The Insurance Law, 2010, would set up a Class D for reinsurers and the framework upon which clear and more attractive regulation could be built by the folks at the Cayman Islands Monetary Authority, Butler said.
It would also create a new Class C for special purpose vehicles and tighten regulation, which could perhaps drive some business elsewhere. Previously, there was no minimum capital requirement and essentially no regulatory framework for catastrophe bond vehicles, Butler said.
This could help explain why Cayman is one of the top destinations for insurance-linked securities.
The Artemis blog, which covers the insurance-linked securities market, calls the domicile the "main" catastrophe bond jurisdiction and estimates the market there at $8 billion in issuance.
The changes, Artemis said, could place Cayman on a "more level playing field" with Bermuda, and the stiffer regulations could also protect Cayman from loosely-structured special-purpose vehicles from going bust and giving the Caribbean domicile a black eye.
"It really is to help protect the jurisdiction of Cayman," Butler said.
As for the primary driver of insurance dollars on the islands--captive insurance--the new law should have little effect. The one minor change to how they do business is the creation of subcategories for captive insurers with nondomestic business. But otherwise, why fix something that isn't broken.
Once passed, the new insurance law will act as the foundation for new regulation, but no changes are likely to be passed without the feedback of insurance interests.
"It is anticipated that there will continue to be active consultation with interested constituents in the Cayman Islands prior to the Insurance Regulations being enacted," wrote the authors of an alert on the bill from law firm Appleby.
Appleby, the law firm with the largest number of insurance-related attorneys on the islands, estimates that the new law could be in effect by early 2011.
October 12, 2010
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