Cayman Offshore Company Formation and Management

CAPTIVE INSURANCE COMPANIES

Gardens of the Hyatt Hotel - Cayman Islands

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Reasons for Forming a Captive

• To minimize costs by the elimination of a large percentage of traditional insurance company overhead,
• To reduce risk by selecting only quality insureds known to each other (as in the case of some medical malpractice association captives).
• To insure risks which would otherwise be uninsurable. or cost prohibitive.
• Access to the re-insurance market.
• The reduction of Government regulations and restrictions by seeking out a favorable jurisdiction for the registration of the company.
• The reduction of taxes by domiciling the company in a low tax jurisdiction.

Formation of Cayman insurance Companies

There are three different classes of license available as follows:

1. Class "A" is applicable to companies insuring domestic risks from within the Islands.

2. Unrestricted Class. 'B" enables the licensee to carry on all types of insurance business with any insured other than domestic business from within the Islands.

3. Restricted Class "B" restricts the licensee to carrying on business with its parent or such persons as are allowed by the Governor-in-Council. This type of license is generally only used in a ‘pure captive" situation, that is where the insurance company writes policies only for its parent company or for members of a closely held group. Applications are examined and reported upon by the Inspector of Insurance who is responsible for the supervision of Cayman Insurance Company activities. Cayman Advantages The Cayman Islands are becoming the jurisdiction of choice for the registration of captive insurance companies for the following reasons:-

• Less restrictive insurance regulation
• Freedom from exchange control
• Excellent telephone and telefax communications.
• Modern insurance laws.
• Abundance of banking, legal and accounting expertise together with high ethical standards.

Application

• Proposed Memorandum and Articles of Association (by-laws) for the company. The standard by-laws supplied by (IMS are acceptable to the Superintendent. By-laws must state that the company is not empowered to issue shares in bearer form.
• Bank references on the promoters and proposed owners of the company, together. with evidence that insurance expertise is available, to the company.
• Evidence that none of the shareholders, directors or officers of the company has a criminal record.
• A business plan. This states posed business activity of the company, stating the make-up of ownership and management, the type and expected volume of business to be written, details of any re-insurance agreements to be entered into, as well as financial projections. The business plan provides a yard-stick for the annual "certificate of compliance", which is a statement, usually by the auditors of the company, that the activities of the company have been carried out in accordance with the original business plan submitted, allowing for any subsequent amendments approved by the Superintendent. The business plan will also normally include , as an appendix, an analysis of the past loss history of the nature of the business to be written, demonstrating that the proposed business is financially viable.
• Evidence that capitalization is available. The law defines a minimum capitalization for companies doing "General Business" (business which is not long term business such as health or life) as the equivalent of US$122,000. However, the Superintendent will require a higher figure (generally US$200,000 to US$250,000) as a minimum for any new company, and may require an even higher minimum depending on the proposed premium volume and the level of risk retained.
• Confirmation from the company's auditors and from its local representative that they are willing to accept the appointment.
• Appropriate fees. The Government fee payable on application is the equivalent of US$5,487.80. This fee is also payable in January of each year after the year of incorporation. IMS professional fees are likely to be in the region of US$2,500.

Ongoing Requirements

The company must submit annual accounts and must adhere to the parameters established in its business plan or receive prior permission from the Superintendent for any changes. On review of the accounts the Superintendent has the discretion and authority to require the company to moderate its activities or to require the introduction of further capital. No changes in ownership, management or control may take place without prior approval.

International Management Services Ltd

Phone: 345 949 4244

Fax: 345 949 8635

e-mail at: ims@candw.ky