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Cayman banks must be licensed under the Banks and Trust Companies Law 1995 as amended in 2003. The astonishing Cayman Islands banking industry has 340 such licensed banks, of which about 30 hold Class A licenses permitting local and offshore business activity, while the remainder hold Class B licenses, permitting only offshore business – a local office is allowed, but only very limited transactions can be carried out with Cayman Islands residents. Banks do not need to be incorporated locally: a foreign bank can register as a foreign company and then obtain a license. For further details of licensing requirements and procedures and fees payable see Law of Offshore and Offshore Legal and Tax Regimes.

The assets of Cayman banks exceed US$1 trillion as at March 2005. A very wide range of services is offered: the 65,000 offshore companies registered in Cayman include many treasury management or investment management subsidiaries of multinationals taking advantage of the excellent banking environment and absence of taxation. Evidently, private banking is a major component of the industry: asset protection rather than tax avoidance as such is the driving force, so that the stability of Cayman alongside stringent banking secrecy and its sophisticated investment environment are very attractive to wealthy individuals, particularly those from the US where Cayman has a very good reputation.

Cayman Islands’ banks are supervised by the Cayman Islands Monetary Authority (CIMA), which concentrates on 110 banks for which Cayman is the home-country supervisor. CIMA recently extended its bank inspection program to on-shore subsidiaries of Cayman banks.

Cayman signed a Memorandum of Understanding on cross-border banking supervision with Brazil in 1999, and intends to create a network of such agreements with all the countries whose banking supervisors evince interest in Cayman’s banking sector.

Following KPMG’s independent report to the UK Government on the regulatory regime in the Cayman Islands and other offshore financial centers in the autumn of 2000, CIMA made a ruling on private ‘shell’ banks that have no effective supervision because they are not units of established international banks, subject to stringent regulation in their home jurisdictions. Such mainly US banks have no physical presence in the Cayman Islands.

In 2000, the Cayman Islands introduced additional due diligence procedures for banks when they were required to comply with fresh Know Your Customer regulations. The original deadline of 31 December 2002 for the provision of information about customers to the authorities was extended, and the new rules came into force in March 2004.

The due diligence rules require both new and long-standing account holders in the jurisdiction to provide proof of identity and physical address, in addition to an explanation of their banking activities. The rules have provoked criticism from some quarters, particularly from those who have banked in the Caymans for many years, who argue that they are intrusive and unnecessary.

Trust Management

Trust Management has been a major activity in the Cayman Islands for 30 years or more, and trust assets in Cayman now equal or exceed banking assets. Originally the trust was used primarily by wealthy individuals from the major common law countries, but it is now accepted as a major technique of asset protection in all parts of the world. Over the last 25 years the Cayman Islands, perhaps more than some other jurisdictions, have extended and adapted their trust laws to accommodate this wider market, which is not necessarily interested so much just in tax avoidance, but also in the efficient management of wealth in a more general sense. See Law of Offshore for a fuller treatment of trust law in Cayman.

There is a large and sophisticated community of professional advisers on trust matters in Cayman. Individuals can provide trust services in the Cayman Islands without registration, but companies offering trust services must be licensed under the Banks and Trust Companies Law 1995. Foreign or Cayman-resident companies may obtain licenses. These are issued by the Governor, after the Monetary Authority has accepted an application giving comprehensive information about the applicant.

A licensed trust company may be ‘restricted’ or ‘unrestricted’. ‘Restricted’ companies require less capital, but are more strictly controlled.

Private trustee companies have recently become popular. In this arrangement, the trust itself remains uncluttered by control arrangements, which are exercised by the private trustee company, which in turn can be administered by a licensed trust company. This form is particularly suited to the larger type of family trusts with multiple beneficiaries and objects.

Insurance

The Cayman Islands insurance sector is regulated under the Insurance Law 1979 as amended, most recently in 2004. Class A insurance licenses cover domestic insurance in Cayman itself; Class B licenses cover Cayman or (registered) foreign companies conducting external business; restricted Class B licenses are for captives. Applications for licenses are made to the Cayman Islands Monetary Authority (CIMA). See Law of Offshore and Offshore Legal and Tax Regimes for further details of the licensing regime, minimum capital requirements and fee levels.

Legislation in 1998 introduced a Segregated Portfolio Company Law. The SPC is an exempted company which may create one or more segregated portfolios in order to segregate the assets and liabilities of the company held within or on behalf of the portfolio from the assets and liabilities of other portfolios. As originally passed, SPCs were available only to certain types of insurance company, but in 2002 amendments extended the provisions relating to segregated portfolios to any exempted company. In essence, the new law provided that any new company may apply to be registered as a segregated portfolio company. A segregated portfolio company must pay additional fees and must provide notice to the Registrar of the names of all segregated portfolio accounts created.

The changes now in process will allow an existing company to convert into an SPC, although a number of criteria will need to be met, including the written consent of each creditor of the company and the approval of the Cayman Islands Monetary Authority (CIMA). An SPC will also be able to create separate portfolios by reference to a series of shares, as well as by reference to separate classes of shares.

An improvement to the current SPC structure, adopted from Guernsey legislation, will ensure that there will now be no ‘flow over’ from an insolvent cell to general assets. A key change for mutual fund issuers is a provision that secured creditors will now be able to enforce their security against a segregated portfolio, despite the existence of a receivership order against that portfolio. This will ensure that a segregated portfolio will be acceptable to – and will be rated by – the rating agencies in the same manner as an exempt company.

The Cayman Islands has the second-largest captive insurance community in the world, after Bermuda. The year 2000 saw 48 new captives set up in the Caymans, bringing the total to 535. By the end of 2002 Cayman had 642 captives, having beaten Bermuda into second place for new formations in the year with 97 new companies. A total of 83 new captives were licensed during 2003, bringing the total number of active captives to 644 at December 31st writing US$4.98 billion in premium and reporting US$19.35 billion in assets. Additionally, 39 new segregated portfolios were established within the segregated portfolio companies. At December 31, there were 79 Segregated Portfolio Companies licensed with a total of 350 Segregated Portfolios.

Hurricane Ivan in 2004 damaged the Cayman Islands in physical terms, but did not halt the expansion of the insurance sector. According to CIMA, in the weeks that followed the devastating hurricane, nine licenses were granted to captive insurance companies, and the authority also issued an insurance management license to Strategic Risk Solutions (Cayman) Limited.

Brady Young, President of SRS, noted: “There is a strong demand among current and prospective captive owners to domicile their companies in Cayman. As a captive manager it is important for us to be present in this domicile.”

The number of captives increased by 75 to 693 at the end of 2004, a 7% net increase.

Hurricane Season in the Caribbean lasts from June 1 through November 30. Although it’s rare to see a large storm in either June or November, you can never be sure what Mother Nature is going to do. Here’s some helpful information on how to weather any storms you might encounter while traveling in this region.

Airlines
If you are scheduled to fly into an area where a hurricane is expected, get travel updates from your airline. If flights are disrupted, airlines will usually allow you to rebook at a later date, but you will not get a refund if you have booked a non-refundable ticket, nor in most cases will you be allowed to change your ticket to a different destination; rather, you will be expected to reschedule your trip for a later date—most often without any kind of change penalty. Some airlines will waive change penalties when a hurricane is a possibility (though not a certainty) so you can rebook your trip in a limited period of time; this gives you an “out” to avoid a rain-soaked vacation you no longer want to take (airlines do this so they won’t be bringing a lot of travelers into an area that they might have to evacuate later). If you find yourself stuck on an island during a hurricane, just be aware that your departure may be delayed while aircraft are flown in to deal with the backlog of tourists trying to get off the island, and since the delay is weather-related, the airline will not be reimbursing you for any additional costs, including extra hotel nights, restaurant meals, or telephone calls back home.

Hotels & Resorts
Caribbean resorts do everything in their power to protect guests during a hurricane, but don’t be surprised if you are asked to stay in your room or to sleep in a public room during a storm. Food service may be limited, but most resorts go out of their way to keep guests fed and reasonably happy. A particularly destructive storm can make that a challenging proposition, however. If a hurricane warning is issued and flights are disrupted to your destination, virtually every Caribbean resort will waive cancellation and change penalties and will allow you to rebook your trip for a later date; some will allow you to cancel even if a hurricane threatens to strike, even if flights aren’t scheduled. Some will give you a refund if you have prepaid for your stay, others will expect you to rebook your trip for a later date. Some large resort companies—including Sandals and SuperClubs—have “Hurricane Guarantees,” but these kick in only when flights have been cancelled or when a hurricane is sure to strike; just remember that the guarantees give you a credit only for the days that were directly disrupted by the storm. If there was rain for two days before the hurricane actually struck, you won’t be getting any credit for those. On the positive side, if you must stay a couple of extra days before a flight is available, most of the hurricane guarantees will cover your lodging costs for this time. If the resort is not an all-inclusive, you may still be expected to pay for meals and drinks.

Pre-Paid Packages
There’s nothing more disappointing than pre-paying for a package deal you can’t take because a hurricane is bearing down on the island. Travel companies have different philosophies about this. A few will refund your money if a hurricane is about to hit the island where you’ve booked your vacation, but you should expect the refund to take at least 30 to 60 days. Most will force you to reschedule your trip. Even if the resort you’ve booked has a hurricane-guarantee policy, you may have to fight for your 2 or 3 days’ refund from the travel company, though most will make good on guarantees, though they might not do so efficiently or happily. This is where a good travel agent comes in handy; your agent can work on your behalf directly with the travel packager. If you’ve booked your package online, you’ll be fending for yourself. If your travel company has its own policy for weather-related cancellations, that policy might also allow you to rebook for a different date, but you’ll still rarely get a refund.

Travel Insurance
Doesn’t travel insurance protect you during hurricane season? Yes and no. Most travel insurance policies will cover a trip disrupted because of a hurricane (when you are forced to arrive late or leave early for your trip), but you’ll be reimbursed only for the affected days until the airport or resort reopens. You will usually be reimbursed for the days you are forced to stay at a resort during a hurricane, but be sure to read the fine print on your policy to make sure you are actually covered. And remember that you’ll usually only be covered if you buy your insurance at the same time you book the trip or before any kind of hurricane watch or warning is issued; otherwise, the hurricane might be deemed a pre-existing condition, which means no compensation for you. But if the airlines are operating and allowing passengers to fly to the destination, you’ll usually be expected to leave for your vacation, even if a hurricane threatens. Also, most insurers won’t pay as long as the airline is flying, even if the resort you booked and paid for is totally destroyed by the storm. In a case like this, it’s usually better to take advantage of the airline’s more flexible change policy and rebook your trip for a different time and a different resort.

Cruises
The good thing about cruises is that they can usually sail around the worst of a storm. And today’s ships are extraordinarily safe. The bad thing is that the cruise you get may not be the cruise you signed on for. A cruise line always reserves the right to reschedule port calls and change itineraries for weather-related reasons; the line might even shift a cruise from the Eastern to Western Caribbean if a hurricane threatens its route. There is almost no chance you’ll get a refund just because the port you’ve longed to see is no longer on your itinerary. You might get a discount on a future cruise or a shipboard credit, but that’s about the best you can hope for. If you aren’t able to get to your port of embarkation because of weather, be happy that you bought a travel insurance policy. You did that, right?

Track Those Hurricanes
Several web sites track hurricanes during the season, including weather.com, hurricanetrack.com, and accuweather.com