Sep 2026
As the Cayman Islands reinsurance market continues to grow in scale and complexity, Cayman-domiciled reinsurers are using an increasingly diverse range of financing tools to support capitalisation, regulatory compliance and strategic objectives. This article provides a practical overview of the principal instruments, key legal considerations and emerging structures relevant to Cayman Islands reinsurance financing.
Overview of Financing Tools
Reinsurers may draw on a broad range of financing tools, which can be grouped into the following categories:
- Collateral and security support: letters of credit and trust arrangements;
- Liquidity and corporate funding: revolving credit facilities, term loans and bilateral lending;
- Regulatory and capital-management tools: surplus notes, capital redemption contracts, preference shares and subordinated debt; and
- Structured and alternative capital: sidecars, catastrophe bonds, collateralised reinsurance and structured reinsurance.
These instruments can provide targeted liquidity, collateral or regulatory capital without the dilution associated with ordinary equity. They also allow reinsurers to align funding with their risk profile and are therefore used as strategic tools for capital management, regulatory compliance, ratings support, risk transfer and enhanced underwriting capacity.
Lender Requirements
As part of the funding process, lenders typically require, among other things, a host of representations / warranties / covenants / undertakings / certifications / opinions from the reinsurer / borrower or its counsel and evidence that certain conditions precedent (“CPs”) have been satisfied for comfort that:
- the reinsurer is duly incorporated and in good standing;
- the reinsurer has the capacity and authority to enter into the financing transaction;
- all required regulatory approvals have been obtained (if needed);
- any security has been validly created and perfected under relevant laws; and
- the transaction documents and any security are enforceable.
In practice, to satisfy the CPs the reinsurer will have to provide copies of constitutional documents and statutory registers, good-standing certificates / letters from the Registrar of Companies / CIMA, CIMA approval (if needed), board resolutions, executed security documents and a Cayman Islands counsel opinion addressing corporate status, capacity, authority, enforceability and, where applicable, the validity and perfection of security.
Where financing is secured, particular attention should be given to the nature of the assets being charged and the reinsurer’s ability to grant security over them. The constitutional documents and approved business plan must permit or at least not restrict the proposed security. Security is commonly granted over cash and custody accounts, receivables, bond portfolios, listed equities and investment funds. Lenders will also want to understand whether the charged assets support reserves or policy liabilities, or whether they represent surplus assets. Security must be recorded in the company’s register of mortgages and charges. In group financings, practitioners should also consider whether share pledges or “all asset” charges could inadvertently capture assets of a Cayman Islands reinsurance subsidiary.
Regulatory Capacity and CIMA Engagement
A reinsurer’s ability to enter into financing arrangements must also be assessed through the lens of its CIMA insurer licence and approved business plan. Those documents should be reviewed carefully to confirm whether the proposed borrowing, security package or related capital treatment is permitted / not restricted.
Granting security may also require approval, particularly where the arrangement gives rise to change-of-control considerations or affects assets supporting policyholder obligations. CIMA may therefore need to review financing arrangements on a case-by-case basis.
For that reason, regulatory approvals, constitutional document amendments and business plan amendments should be built into the transaction timetable from the outset as a precaution. Early engagement with Cayman Islands counsel and CIMA can help identify approval requirements, manage timing and reduce execution risk.
Alternative Capital Structures
Alongside traditional credit facilities, Cayman Islands reinsurers are increasingly considering instruments that support regulatory capital, provide longer-term funding or facilitate access to institutional capital markets. Surplus notes, capital redemption contracts and funding agreements are among the structures attracting particular attention.
Surplus Notes: Surplus notes, originally developed in the US insurance market, may be used to enhance regulatory capital and are generally classified as statutory surplus or equity. They provide non-dilutive funding that can support solvency and underwriting capacity. The instrument is deeply subordinated, ranking below policyholders and all other prior creditors, and CIMA approval is required for all interest and principal payments. Terms are typically aligned with National Association of Insurance Commissioners (“NAIC”) surplus note principles. In a recent transaction Conyers advised on, a Cayman Islands reinsurer issued up to US$150 million of surplus notes with a 20-year maturity in a private placement to institutional investors.
Capital Redemption Contracts and Funding Agreements: Capital redemption contracts aka “funding agreements” are also emerging as financing options for Cayman Islands life reinsurers. They typically have fixed maturities and fixed interest rates, with claims ranking equivalently to policyholder obligations. The global funding-agreement market exceeds US$200 billion. A recent Cayman Islands-based funding-agreement-backed notes (“FABN”) programme of up to US$10 billion was reportedly the first of its kind under the Insurance (Amendment) Act, 2022 which Conyers also advised on. Notes were issued by an unlicensed Cayman segregated portfolio company, backed by funding agreements from a licensed Cayman reinsurer, and assigned an AA- rating by Fitch Ratings. The structure illustrates the potential for Cayman Islands vehicles to support scalable institutional capital platforms.
Looking Ahead
The development of the Cayman Islands reinsurance sector is being matched by a more sophisticated approach to financing. The jurisdiction’s adaptable regulatory framework and CIMA’s constructive, pragmatic approach provide a platform for innovation, including the use of instruments developed in the US market on terms broadly aligned with NAIC principles.
For market participants, the key to execution is early planning. Constitutional documents, licence conditions and the approved business plan should be reviewed at the outset; CIMA engagement should be factored into the transaction timeline; CPs should be tailored to Cayman Islands regulatory requirements; and security packages should be analysed carefully by reference to the assets proposed to be secured. As the market continues to evolve, we believe Cayman Islands reinsurers are likely to make increasing use of both traditional and alternative financing structures to support growth, capital efficiency and long-term strategic objectives.