As a sophisticated jurisdiction for reinsurance business, corporate governance is a topic that has attracted significant attention in the Cayman Islands. The recent publication of CIMA’s Thematic Review of Reinsurance Companies offers a window into the regulator’s expectations regarding compliance by entities in the sector with the Insurance Act and related rules and guidance, representing an opportune time for boards to re-evaluate governance practices and understand the priority areas for action.
In the review of Class B(iii) and Class D reinsurers, CIMA found that corporate governance accounted for 68% of all identified weaknesses. The concentration of failings in how governance arrangements are both designed and documented demonstrates that CIMA is applying institutional grade expectations to reinsurance platforms which have only become more complex as they have grown larger. Governance of sub-committees was highlighted due to an absence of meetings actually taking place, or where they did take place, the documentation was either missing or inadequate. Some Audit Committees were also not discharging the duties set out in their charters, and in some examples, committees were operating without charters.
Board oversight was another key area of deficiency, where either roles and responsibilities assigned to Directors were not clearly defined or documented. In other scenarios, there was insufficient evidence from Board meeting and agenda minutes to demonstrate risk reviews had been received and reviewed by the Board. Further weaknesses were related to outsourcing to service providers with some examples where contracts were missing or incomplete.
Corporate governance in the sector was also impacted by inadequate segregation of duties. Multiple roles were being held by one individual, without any appropriate mechanisms to address this, including where treaties are priced and approved. Other areas identified with deficiencies included the lack of an effective and comprehensive internal audit function to monitor internal controls systems, as well as outdated business plans and inconsistent governance documentation. Formal Board meetings were also not being convened, and Boards of Directors were failing to conduct periodic self-assessments.
CIMA’s report outlines “Areas for Improvement” which can be distilled into key priorities for Boards of regulated reinsurance entities to act on now by taking specific steps.
Strengthen Oversight and Accountability
Board and committee charters should be refreshed to ensure that mandates are current and being followed, with composition, meeting frequency and reporting lines all being addressed. Delegated authorities should be formally mapped out, with approval thresholds outlined. Structured periodic report packs covering risk, capital, liquidity and collateral positions should also be required as a matter of course, while minutes should provide evidence of genuine engagement and challenge by Board members.
Align and Update Governance Frameworks
Consistency must be established across the business plan, capital and collateral policies, ALM, cash flow documentation, stress testing frameworks, and outsourcing agreements. Any outdated references need to be removed, and the current operating model must not only be documented but should reflect the actual situation. Any material changes to the business plan will still require CIMA approval.
Formalise Outsourcing Oversight
Written agreements should be executed or updated for all material service providers, including insurance managers, investment managers, actuarial providers, and intra-group arrangements. Importantly, contracts should be clear in scope, containing KPIs, performance metrics, reporting obligations and termination rights, as well as business continuity provisions and conflict of interest clauses. Oversight responsibilities of the Board or relevant committee should also be documented, and it should be ensured such responsibilities are properly exercised.
Enhance Segregation of Duties
Entities should ensure that the pricing, underwriting, approval, and ongoing monitoring functions are separated where it is practical to do so. Where lean staffing situations make full segregation impossible, then robust compensating independent review or dual control mechanisms should be implemented and fully documented.
Introduce Internal Audit / Independent Review
Establish an internal audit function or arrange or outsource periodic independent governance and control reviews, covering at a minimum: capital and collateral management, cash flow testing, stress testing and key operational controls. Findings should be reported directly to the Board or Audit Committee, with formal tracking of remediation steps.
Improve Board Discipline & Evaluation
Overall discipline can be addressed by implementing annual Board and Committee self-assessments. Meetings should be regularly taking place at the required intervals, with discipline exercised over the agenda, as well as decisions and challenges fully documented - along with the rationale - and recorded in minutes.
CIMA’s expectations are now aligning with those already applied by insurance regulators in US states, as well as cedents and ratings agencies. While the thematic review and noted areas of deficiency are not aimed at addressing issues related to balance sheets or solvency of regulated entities, it does highlight the maturity of Cayman’s institutional scale reinsurance market, with strong governance essential for regulatory compliance, confidence in counterparties, and continued industry growth.
Rena Strecker, Anna Goubault and Casey McDonald make up the Insurance Team at Calderwood. If you have any questions about the issues raised in this article, please don’t hesitate to get in touch with one of the team.
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