Merger, Consolidation and Sale Cayman Captive Forum Tuesday, 2 December 2014

Kevin Butler Conyers Dill & Pearman Managing Director Dara Keogh KPMG Partner Brett Wiggins MetLife Senior Counsel Clayton Price Marsh Management Services Cayman Managing Director

The Merger Two large insurance companies merge to form “Global Insurance Company” domiciled in Canada/U.S. The First, a healthcare insurer based in the US, maintains a captive in Bermuda, and an investment company in Cayman. The Bermuda captive is a large company in its own right. The Second, a Canadian insurance company, has a captive in Barbados. The Barbados captive was domiciled there for tax reasons. Post-merger, Global Insurance Company wants to simplify its corporate structure How should the captives be handled? 3

U.S. Healthcare Insurer Bermuda Captive Cayman Investment Company Canadian Healthcare Insurer Barbados Captive 4

Combined Healthcare Insurer (H.Q.-U.S.) Bermuda Cayman Investment Company Barbados Captive 5

Should we Consolidate the Captives? Cost of maintaining two captives Taxes, fees and local service provider costs Burdens of multiple captive (e.g., board meetings, governance) Capital Considerations How much capital will be tied up? Bermuda Solvency II/BSCR Requirements? 6

Should we Consolidate the Captives? Regulatory Relationships Other captives/operations in domicile? Input from regulators in other domiciles where captive is doing business? Observe all discontinuance requirements -- Important not to “burn bridges” on departure 7

Should we Consolidate the Captives? Obligations to Captive’s Insurers/Lenders/ Financial Counterparties/ Guarantors May require consent from Lenders to re-domesticate/merge Where asset segregation is required, consider protected cell structure Conclusion In most cases, a single captive can accomplish what is needed. 8

Client Considerations 9 Regulator Sophistication Ability to fully understand captive operations and risks Regulator Responsiveness Adequate staffing to ensure timely response Regulatory Clarity & Stability Clear regulations that are not frequently changed Adaptability of Captive Operations Ease of business plan changes and additions Reputation of Domicile

Where to Consolidate? Longstanding Captive domicile CIMA licensed one of the first captives for Harvard in CIMA is an experienced regulator of captives Currently, there are 761 Class B insurers licensed in Cayman Licensing process tailored to each captive’s business needs and operations Flexibility in setting required capital levels based on risk factors specific the underlying business Avoids unnecessary costs associated with purely formulaic capital requirements Cayman offers compelling advantages: 10

Where to Consolidate? Sophisticated local service providers Tax advantages Effective regulation Political stability 11

How to Consolidate? 1. Merger 2. Re-Domestication3. Portfolio Transfer 12

How to Consolidate? Merger Set up New Cayman Entity (“NewCo”) and Merge other entities into NewCo o Complete solution o Requires cross border merger o Simplifies corporate structure o Tax and accounting complexities. Merger Set up New Cayman Entity (“NewCo”) and Merge other entities into NewCo o Complete solution o Requires cross border merger o Simplifies corporate structure o Tax and accounting complexities. 13

How to Consolidate? Re-Domestication Re-domesticate one or both entities to Cayman o Complete solution o Well established re-domestication process familiar to Barbados and Bermuda regulators o Potentially very quick o Ultimately merge re-domesticated entities Re-Domestication Re-domesticate one or both entities to Cayman o Complete solution o Well established re-domestication process familiar to Barbados and Bermuda regulators o Potentially very quick o Ultimately merge re-domesticated entities 14

How to Consolidate? Portfolio Transfer Create New Cayman Entity and transfer portfolio to NewCo o No merger required; a purely contractual solution once NewCo formed and licensed o Possible regulatory issues regarding winding up of non- Cayman captives o Potentially incomplete solution. Residual liabilities? (e.g., liability inadvertently left with former captive) o a portfolio transfer may require agreement from third parties Portfolio Transfer Create New Cayman Entity and transfer portfolio to NewCo o No merger required; a purely contractual solution once NewCo formed and licensed o Possible regulatory issues regarding winding up of non- Cayman captives o Potentially incomplete solution. Residual liabilities? (e.g., liability inadvertently left with former captive) o a portfolio transfer may require agreement from third parties 15

Can the other Captives be sold? Limited Market for Captive Sales Even if bid, price not likely to be attractive Captive usually party to Affiliated Agreements Seller may be concerned with transferring contracts prepared between affiliates to an unaffiliated party Portfolio Transfer to Third Party Possible, but likely time consuming Third Party may not accept complete portfolio, leaving captive with business to administer 16

Solution Re-domesticate Bermuda/Barbados Entity to Cayman and merge Barbados/Bermuda Entity with Cayman Entity upon re-domestication 17

Doing Business in Cayman Regulatory Requirements Annual Meeting/ Corporate Governance Requirements Cooperation/ Coordination between CIMA and other regulators Accounting Requirements 18

Accounting Considerations US GAAP - business combinations ASC 805 – acquisition method. Even under a merger, an acquirer and an acquiree will need to be identified for US GAAP reporting. The other important factor is the acquisition date.Appropriate accounting treatment. 19

The Future in Cayman Pending Legislation and Regulatory Initiatives Portfolio Insurance Company (“PIC”) legislation Class B (iv) regulations 20

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