In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 for offshore.
Key developments in 2019
Companies located and operating via offshore jurisdictions have grown accustomed to calls for greater levels of transparency in the way they conduct business. Public and governmental disquiet about tax regimes in these territories has led to calls for change. There have also been wider concerns about the opaque way companies have been permitted to hold and process corporate and private information. In 2019 important new legislation was introduced intended to address these negative perceptions.
Triggered by the EU's focus on preferential tax regimes in Bermuda, BVI, the Cayman Islands, the Isle of Man and the Channel Islands, each enacted new ‘Economic Substance’ laws and regulations. These mean there are now legal requirements in banking, fund management and insurance to ensure their offshore entities' operations are commensurate with the profit creating activities they undertake. As a result, offshore advisory firms (legal and financial) have and will be heavily engaged in providing advice on these new areas of law and each jurisdiction's respective guidance to ensure compliance.
In 2019 the Cayman Islands saw, for the first time, the introduction of data protection legislation affecting all entities established there. Much of the commentary has focussed on its implications for Cayman based investment funds, whether registered with the Cayman Islands Monetary Authority or not.
Pressure exerted by the UK parliament and EU’s 5th Money Laundering Directive led to the UK Crown Dependencies announcing in June 2019 the introduction of beneficial ownership registers. Once in place, they will allow wider access to information that reveals the ultimate, not just legal, owner of companies registered in these jurisdictions. We can reasonably expect professional and financial advisers to already be advising clients how the new rules might require changes in the way they choose to organise their offshore financial structures.
What to look out for in 2020
Insurers will know the Cayman Islands continue to pay host to large scale litigation. One particular case for insurers to watch out for will be the high-value Madoff related litigation between Primeo Fund and HSBC. The judgment of the Cayman Island Court of Appeal has been appealed by Primeo to the UK's Privy Council and we expect that appeal to take place towards the end of 2020.
This case should be of interest to insurers as it concerns not only the liability of investment fund administrators and custodians, but also the rule against reflective loss (which acts to prevent claims by shareholders to recover loss considered reflective of loss sustained by the subject company).
The UK Supreme Court is also expected to hand down judgment in another reflective loss case this year (Sevilleja v Marex Financial Ltd). This will have implications for how other commonwealth jurisdictions consider the issue.
Authored by Richard Booth.
Download our full Annual Insurance Review 2020 for more insights.