Ian Edward Stafrace from Atlas Insurance PCC shares how innovative cell solutions can simplify cross-border insurance

Brexit’s aftermath has pushed the EU and UK insurance sectors into a further complex regulatory and operational environment, creating barriers to entry for captives and insurers, particularly concerning cross-border activities.

Atlas Insurance PCC’s strategic UK branch expansion demonstrates the industry’s drive to simplify cross-border insurance operations through innovative and flexible cell solutions with access to both EU and UK insurance markets, transcending geographical and regulatory barriers.

Protected cell companies help foster adaptability and growth within the captive and insurance industry.

Here, we will explore how establishing cells offers benefits for captive owners, risk managers and insurance intermediaries, highlighting the advantages of EU-based protected cell companies and the bridge Atlas can provide across the EU and the UK.

Post-Brexit insurance landscape

The end of passporting rights, which allowed UK-based insurers to cover risks and sell their services across the EEA without needing separate authorisations and vice versa, has led to a re-evaluation of business models.

Companies are now often compelled to obtain licences in both jurisdictions, establishing a presence in the EU and the UK to preserve market access.

Facing multiple regulatory systems complicates cross-border insurance operations and increases administrative burdens and costs.

Others restructured their insurance programmes, often pursuing costly fronting arrangements. Amid these regulatory disruptions, the insurance sector also witnessed technological advancements rapidly transforming the industry, introducing new opportunities for digitalisation and innovation.

Insurtechs are challenging traditional models while established companies are increasingly partnering with insurtechs, leveraging technology to enhance efficiency and customer experience. These same insurtechs are striving for solutions that transcend borders.

The role of protected cell companies

Protected cell companies can offer a cost-effective and flexible solution for managing cross-border insurance complexities.

They can cater to diverse sectors, from bespoke captive solutions for organisations self-insuring more controlled and cost-effectively, to insurtech innovators that leverage digital advancements for enhanced customer experience, all without the costs and burden of establishing and manning separate legal entities.

A protected cell company acts as an umbrella entity housing and transacting for multiple distinct ‘cells’ within it, each with its own assets and liabilities.

The cell’s assets are segregated and shielded at law from liabilities of other cells or of the non-cellular core, providing confidence to cell investors.

Pooling resources and sharing functions significantly reduce setup and operational costs compared to forming standalone entities.

Their structure allows for rapid adaptation to new regulations and market opportunities, with each cell operating independently but under the umbrella of a single entity with its shared licence, knowledge and resources.

The protected cell company model ensures regulatory compliance across jurisdictions within the protected cell company’s licence to operate without the need for separate entities and enables quick market entry and product launch.

Strategic UK expansion

Having been active in the UK since 2010 and recognising the challenges Brexit brought, Atlas has taken the significant step of establishing its first physical branch outside of Malta in the UK, also becoming the first EU-based protected cell company with a UK branch licence.

This milestone reinforces Atlas’s century-long innovation legacy and supports the continuity and growth of seamless cross-border insurance services across the UK and EEA.

For instance, a business facing surging premiums across the UK and EU for its compulsory financial lines insurance created a cell to insure its own risks directly.

The cell helped it achieve compliance, reduce costs and complexity, and access broader reinsurance markets tailored to its risk appetite.

A Vermont captive with a Gibraltar-based subsidiary lost the ability to cover its European risks directly post-Brexit.

The premiums were too low to be viable for traditional fronting carriers. Through its active non-cellular core, Atlas rapidly insured these risks, reinsuring back to the captive.

This incubation provided a quick solution within a few weeks and allowed the captive owners more time to consider setting up a dedicated cell as a longer-term solution for its European risks.

In the insurtech space, an intermediary providing embedded insurance established a cell to become its own carrier, thus gaining control over capacity, retaining profits, and expanding offerings across the EU and UK.

It could better test, refine and scale its solutions without relying on insurers and without the substantial time, investments and expenses required to set up an insurance company.

As an independent protected cell company host, Atlas also extends the win-win opportunities for global insurance and captive management companies, brokers and consultancies, as well as their customers, whether for retail insurance or captive risk financing.

Life reinsurance

The choice of Malta as a jurisdiction for reinsurance cells and companies has also increased in recent years, reflecting stakeholders’ growing preference for entities to be brought back onshore within the reputable EU regulatory environment and substance expectations.

In a significant development in 2023, Atlas marked a further milestone by becoming the first non-life insurance protected cell company to broaden its licence to encompass life reinsurance.

This pivotal move was a direct response to the evolving demands of the market. The first cell benefiting from this broader licence reinsures consumer products with both non-life and life covers.

There is also the notable potential for reinsuring employee benefits such as group life. Cells hosted by Atlas can, therefore, directly cover non-life risks across the EEA and UK markets and reinsure life and nonlife risks, providing a wide range of insurance solutions under a single, streamlined structure.

This development underscores the growing importance of protected cell companies in delivering efficient, versatile insurance solutions to meet evolving industry demands.

Future outlook

In a rapidly changing global insurance landscape, the role of protected cell companies is set to become increasingly significant.

Amid technological progress, a heightened emphasis on sustainability and evolving regulatory demands, protected cell companies provide a nimble framework for innovation.

Protected cell companies also leverage their structures to address environmental, social and governance (ESG) considerations, supporting sustainable practices and managing emerging climate-change risks, thereby meeting the increasing stakeholder expectations for responsible and ethical business practices.

Cells can serve as a tool for pre-funding and managing uncertainties related to future risks, enabling organisations to proactively plan for and address these risks with the support of actuaries and reinsurers.

Cells can also align investments with sustainable funds that are potentially ESG-rated, demonstrating a commitment to sustainability, which is facilitated by regulations like the EU Sustainable Finance Disclosure Regulation.

Agile adaptation is critical. Protected cell companies offer flexible structures that empower organisations to cost-effectively manage capacity, risks, sustainability and international compliance.

Protected cell companies are also becoming digital innovation hubs, enabling partners to create future-tech insurance products with enhanced customer experience.

Protected cell companies are adept at navigating the regulatory terrain, ensuring cell owners can seize new opportunities while aligning with stakeholder expectations like customer fair value and the broader ESG reporting landscape.

For captive owners, risk managers and insurance intermediaries, the message is clear: the future of insurance lies in embracing modern adaptive solutions.

The challenges of cross-border insurance, while significant, are surmountable with the right approach and tools.

Protected cell companies and innovative cell solutions represent an important step forward, offering a flexible pathway to thrive.