Cell Captive Insurance: Things You Need To Know

Elbert Grims
3 Important Things You Should Know About Segregated Cell Captive Insurance  - Big Joe Online

Here are reasons why you consider a cell captive insurance program:

What is Cell Captive Insurance?

We’re starting off with the real question: What is cell captive insurance?

A cell captive insurance maintains covering accounts separately for each participant. They are flexible risk management solutions that provide many benefits of a standalone captive insurance companies, including things that allow the insured a chance to retain a certain proportion of the risks and better manage without fully operating on the costs of a standalone captive.

Each cell captive insurance is different in terms of structure, and in one cell captive, you will definitely not see them all. Dig further into the cells that you choose, especially in considering your best alternatives when it comes to captive types, design and formation.

Cell captive insurance is usually suited to:

  • Financing risk where losses are predictable.
  • Acting as fronting structure to access reinsurance markets.
  • Collateralized (re)insurance
  • Situations where the market conditions may force retention or funding less predictable risks.
  • Companies needing segregation risks that are associated with a specific project, division, joint-venture and strategic alliance.

How does Cell Captive Insurance Work?

You might start to wonder how cell captive insurance works. Well here are broad  ideas on how they do:

  1. Formation
  • It can be quick with minimal startup cost
  • A participant agreement is signed by each member that defines the rights and obligations of the cell.
  • The Assets and liabilities are legally segregated from the others.
  1. Capital
  • It is required by the local regulator for the general owner to maintain the minimum core capital. 
  • Participants have no ownership interest in the cell facility. It may need to post collateral or contribute funds to its cell.
  1. Underwriting
  • Annual operating expenses can be less for a cell than a standalone captive
  • There is potential for enhanced management and the control over losses.
  • Calls are available for the most line of business, (e.g.: general liability professional liability, workers’ compensation, property warranty, trade credit, cyber risk and medical stop-loss)
  • A traditional licensed insurance company needs to provide fronted policies on rated and admitted paper, depending on the line of coverage.
  1. Reporting and Regulations
  • The owner of the cell facility is responsible for the cell’s compliance with regulatory requirements and administrative tasks.
  • A rented cell does not require a separate board of directors
  • Separates reporting is also available to the participant that accounts for income statement activities.
  • Individual cells may or may not receive their own audit report, it usually depends on the domicile, the cell facility and the needs of the participants.

What are the Types of Call Captive Insurance?

There are 2 types of call captive insurance programs that you could possibly choose from:

  1. Protected cell captive (PCC)

Protective cell captive is an alternative to conventional commercial insurance. It offers benefits similar to it through group and single-parent captives at a reduced or lower start-up. 

Having a PCC means that you have separate identifiable cells that are created and owned by the same or separate cell users. Cells can issue insurance policies and access reinsurance markets.

  1. Segregated cell captive (SCC)

Segregated cell captive establishes legally segregated calls. The objective of a segregated cell captive is to ensure that the assets in one underwriting account may not be used to satisfy another account, nor general (non-cellular) liabilities.

Benefits of Cell Captives

  1. Flexibility in structure

Cells may have different structures within the same core.

  1. Allows core cell captives and individual cells be formed as corporations

There is a capital required to incorporate in a cell that may be minimal if the cell’s risk is fully funded or reinsured.

  1. Limited liability in companies, reciprocals, mutual corporations, non-profit corporations, and risk retention groups.

 It provides tax flexibility, lowering the overall tax burden. Audit, captive management, legal and investment fees are lower.

Cell captive insurance has their own pros and cons, but they are needed and plausible because these will guide you to what is best suited for both the insurance company’s needs and your needs in terms of both short term and long term. With qualified advisory expertise, you will for sure get the best terms for you and your firm.

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