The Cayman Islands has made some changes to its regulatory framework for catastrophe bonds, with a new fast-track license approval process that aims to streamline the issuance of cat bonds registered in the domicile.
The Cayman Islands has fallen far behind in the race to attract catastrophe bonds and other insurance-linked securities (ILS) business to its shores, having left its regulatory process largely untouched in recent years while other domiciles have been enhancing theirs.
The ILS market is seen as an attractive source of revenue for domiciles, hence the rush to put in place special purpose reinsurance vehicle legislation and ILS compatible rules at so many offshore and onshore financial centres.
The Cayman Islands Monetary Authority (CIMA) has announced a fast-track approval process for catastrophe bond issuance vehicle licenses. This will enable applications for Catastrophe Bond Vehicles (Cat bonds) of Class ‘C’ insurers to be streamlined, making the time to market faster and the process of license approval more efficient.
As of the 6th February 2017 non-complex catastrophe bond applications can be completed within 5 to 10 business days, with approval now set to be made by the CIMA Insurance Supervision Division level, rather than at the Authority level.
Additionally, renewals or repeat catastrophe bond issues where the structure and transaction is analogous with one previously approved can now be fast-tracked as well, with a 5 to 7 business day timeframe cited by CIMA.
In the past, all catastrophe bond vehicle licenses had to be approved during the Authority’s weekly Management Committee meetings, which meant they had to get onto the agenda for such meetings first and has been known to be a bottle-neck in the process causing timeframes to slip.
CIMA notes that approval at divisional level is not new to the Authority, all funds licenses and registrations, including portfolio insurance companies, have been approved at divisional level previously. However this is the first time cat bond approvals have been moved to divisional approval.
Alongside these changes, CIMA also aims to develop a new standalone licensing policy for Class ‘C’ insurers, with clearly outlined criteria and procedures for issuing licenses, and offering assistance to mitigate any risks.
The Class C insurer license is also utilised for other types of ILS and collateralised reinsurance vehicles, so these rules could in time benefit not just cat bond sponsors, but also reinsurance sidecar sponsors, collateralised reinsurance investors and make the Cayman Islands more attractive to ILS fund managers looking for new locations to domicile transformer vehicles.
CIMA’s Managing Director, Cindy Scotland, commented on the new licensing rules; “This fast-track licensing process is another testament towards CIMA’s efforts in accommodating sophisticated solutions within the financial industry, while maintaining our obligation as a regulator.”
Being able to offer competitive time-scales to get catastrophe bond or other ILS vehicles up and running is key in any domiciles ambitions to bring more collateralised reinsurance business to its shores. More choice and competition is of course no bad thing for the ILS market as a whole.
We understand that the Cayman Islands Monetary Authority has been assisted by ILS market players to establish this new, faster license approval process. It will be interesting to see whether it can encourage more ILS transactions to the domicile.