How Captives Work – Licensing Process, Run-Off Mode, Regulatory Matters for the insured IMAC Captive Basics Course 2011 Dena Thompson Manager Kane (Cayman) Limited

Overview  Licensing Process  Regulatory matters for the insured  Run – Off Mode

Licensing Process - Steps 2. Submit Application 3. Regulator Review Questions 4. Ins Division Submit Submission To MC 5. Approval in Principle 6. Provide Outstanding Items 7. License Issued LICENSING

Licensing Application n Application Form n Business Plan  Background  Shareholder Info  Insurance Program (Front, Programs, limits)  Reinsurance (Names and Ratings)  Proposed Capital (Why Adequate)  Directors  Service Providers  Investment Policy  Dividend Policy n Pro-Forma Financials (3 Years) n Memorandum & Articles of Association

Licensing Application Cont…. n Memorandum & Articles of Association n Shareholder Due Diligence  Company - Last Two Year Audited Statements  Individual – Notorised Net Worth Statement n Directors Due Diligence  Personal Questionnaire  One Financial Reference  Two Character References  Affidavit/Policy Clearance  Certified copy of Photo ID/Utility Bill (Not for CIMA) n License Fee n Certificate of Incorporation n Capital

Run-off Mode

n When an insurer has ceased to write new insurance business and it’s business purpose is to essentially run off its existing liabilities it is in a “Run-Off” mode. CIMA should be updated via a business plan change n A Company in run-off will receive the benefit of a reduced annual fee to 50% of the prescribed annual fee (once it is applied for and approved prior to December 31) n A Company in run-off may also apply to CIMA for an audit waiver on an annual basis. Run-off does not automatically justify an audit waiver. CIMA has the authority to require an audit at any stage in the run-off process. n A Company can come out of run-off via a business plan change to CIMA n Run-Off does not remove the duties of the Directors and Officers of the Company n Run-Off does not remove the responsibilities to the ROC n Run-Off does not remove the responsibilities to CIMA

Regulatory matters for the Insured

n Insurance is not regulated at the federal level in the US, but at the State level. n The regulations vary by state. n State guarantee funds etc – PA M-Care n Regulation is aimed at protecting the consumer of insurance. n Regulations address  Pricing – filing of rates  Financial strength – reporting  Coverage terms  Claim resolution  Sharp practice n There is also some protection for the vendors of insurance – non-licensed “alien” carriers cannot compete n This is the crux of not being perceived to do business in a US State. Otherwise the outcome is:  Cease and desist  State regulation

Regulatory matters for the Insured n Regulations address  Pricing – filing of rates  Financial strength – reporting  Coverage terms  Claim resolution  Sharp practice n There is also some protection for the vendors of insurance – non- licensed “alien” carriers cannot compete n This is the crux of not being perceived to do business in a US State. Otherwise the outcome is:  Cease and desist  State regulation

Regulatory matters for the Insured Solutions n State license n Fronting n Surplus lines n Purchase of insurance taking place offshore. n Security measures

n QUESTIONS ????????