Thu, 01 Jun 2023
Robert Levy KC at No5 Chambers, together with Rupert Bell and Daisy Boulter of Walkers Cayman recently succeeded in the Cayman Islands in the first case determining that transfers of long-term business without the approval of the Cayman Islands Monetary Authority are void ab initio. The case concerned a Cayman Island licensed insurance company who, without CIMA’s approval arranged its affairs so that policyholders’ policies payable by the Cayman Islands entity would in fact be reissued by a Puerto Rican entity. The Court found that its conduct in doing so was in breach of section 31 of the Insurance Act, 2010. The Court also offered observations about the seriousness of a licensee’s obligations to carry on business in accordance with its business plan, and the possible consequences under section 8 of the Act, of failure to do so.
Premier Assurance Group SPC LTD (IN OFFICIAL LIQUIDATION) v Providence Insurance Company I.I for and on behalf of Premier Assurance Segregated Portfolio Puerto Rico SAP. and Others
Grand Court of the Cayman Islands
17 May 2023
The Grand Court of Cayman Islands finds the transfer of $34m of insurance policies without the prior approval of the Cayman Islands Monetary Authority to be in breach of section 31 of the Insurance Act 2010, and consequently void and of no legal effect.
The Plaintiff was registered in the Cayman Islands and was licenced to offer insurance products to a global market (except USA, Cayman Islands and BVI). The Defendant companies have the same individuals with the ultimate controlling or beneficial interest as the Plaintiff.
On 15 June 2020, one of the Plaintiff’s segregated portfolios purportedly cancelled or surrendered insurance policies issued within the Cayman Islands and reissued matching policies by an affiliate entity in Puerto Rico. This was done without the prior consent of the policy holders who were only informed of the transfer after the event.
After the Plaintiff went into liquidation, the Joint Official Liquidators [the “JOLs”] sought declaratory relief from the Court that, pursuant to section 31 of the Insurance Act, 2010, the transfer required prior approval of the Cayman Islands Monetary Authority [the “Authority”], and that the absence of approval made the transfer void and of no legal effect. The JOLs also sought a declaration that the transfer was in breach of section 8(1)(a) of the Insurance Act, 2010 as it constituted a change in the business plan and information supplied in the Company’s approved licence application.
The Court found in favour of the Plaintiff on all grounds.
Transfer required prior approval of the Authority
Section 31 (1) of the Insurance Act, 2010 provides: “A transfer or amalgamation of the whole, or any part, of the long term business of any insurer to another insurer shall only be effected in accordance with the approval of the Authority.”
The Court held that the purported cancellation or surrender of insurance policies issued within the Cayman Islands and reissuing matching policies by an affiliate entity in Puerto Rico was a “transfer” within the meaning of section 31 of the Act. The Court stated that section 31 of the Act was concerned with the substantive impact upon the rights of policy holders. If the transaction was not regarded as a transfer within the meaning of the Act then the policy holders would be exposed to vulnerability. The policy holders were not consulted before the transfer and did not have any recourse to protect their interests.
The Court rejected the Defendants’ contention that the Puerto Rican entity was not an insurer for the purposes of section 31 of the Act.
The Court adopted verbatim the submissions of Mr Levy K.C. that section 31 of the Act would afford no protection at all if an insurer could get around it by means of a cancellation by the authorised insurer and re-grant by a foreign, unauthorised entity.
The transfer was not in accordance with the business plan and information
Section 8(1) of the Insurance Act, 2010 provides: “A licensee (a) shall carry on business only in accordance with the information given in its approved licence application and business plan and shall seek the prior written approval of the Authority for any change to the approved business plan or in the information supplied in the application.”
The business plan had not been submitted to the Authority until one month after the transfer had taken place. The Court also found that the licensee had not carried out insurance business only in accordance with the information given in its approved licence application and business plan.
The Court held that the transfer constituted an unauthorised change in the company’s approved business plan and the information supplied in its approved licence within the meaning of section 8(1)(a) of the Act.
Effect of failure to comply with the Act
Section 31 of the Act does not specify the consequences of its breach.
The Court accepted the submissions of Mr Levy KC for the Plaintiff that prior approval of the Authority was a critical safeguard. It formed a vital element of the statutory scheme of oversight and regulation of the insurance market in the interests of the protection of the reputation of the jurisdiction itself and consumers. For this reason, the court found that invalidity is the consequence of a purported transfer of business in breach of section 31 of the Act.
Although obiter in light of the court’s findings on section 31, the Court also held that breach of section 8 of the Act also makes the transfers void.