Cell evolution

Around 22 years on from the introduction of cell captives, the alternative risk landscape has changed dramatically. While captives were previously known as structures exclusive to the world’s largest companies in the North American and European markets, cell structures were soon introduced in a bid to open up the alternative insurance markets to even the smallest companies.

There were approximately 6,315 standalone captives at year-end 2018, but the number of cells is largely unreported. Each jurisdiction classifies a cell to different parameters, meaning that the specific number of cells is often speculated upon.

Despite this, industry figures tell this publication that cell structures are continuing to pique the interests of companies seeking to gain greater control over their insurance costs. While smaller companies search for a cheaper alternative to the traditional insurance market or a standalone captive, large companies have previously used them as a way to test the alternative risk waters.

Following the opening of their Washington DC office back in March, Aon regional director Nancy Gray told Captive Review that many fortune 200 to 250 businesses often start with a cell structure, add in the risks they need insuring quickly before moving on to establish a single-parent captive.

“It’s a way of dipping their toes into captives,” she said.

Paul Scrivener, a consultant for Conyers’ Cayman practice believes that the introduction of cells was a “big leap forward” in opening up funded self-insurance options to the middle market on a global scale.

“When the first cell legislation was introduced in the mid-1990s, the statutory ring-fencing of assets and liabilities provided the ideal opportunity for many small and medium enterprises (SMEs) to access alternative risk financing for the first time. Prior to that it was largely off limits for them as they didn’t have the premium dollars to utilise the traditional model of setting up their own captive. So, the introduction of cells has been very instrumental in helping to open up the market beyond the traditional realm of the large corporates.”

Europe versus US
There has been a proliferation of US states introducing cell legislation in recent times. However, in Europe, the picture is somewhat different.

As is well known, the European and North American captive insurance markets are significantly different. Not only are captives regulated at a state level in the US, the capitalisation requirements and speed to market are in stark contrast.

Since the captive insurance industry began, states have continued to compete with each other for tax dollars through increasingly favourable rules. Many introduced cell legislation as an additional way to attract companies to bring their business back to their home state.

The state of Georgia is the latest to get in on the act. As Captive Review reported in January this year, Georgia passed a bill to accommodate cell structures as part of a bid to prompt Georgia-based companies into re-domiciling their various structures.

Since then, the state has experienced an increasing level of interest in new formations and is in the middle of licensing some before year-end 2019.

Tony Roehl, partner at Morris, Manning & Martin law firm, says: “Things have been going great this year. The main goal is to make Georgia a more attractive domicile for Georgia-based companies and the introduction of cell legislation is the next step of that.

“We want people to know: even if you are not a fortune 1000 company, you can still afford a captive option.

“It’s a great addition for the state. It’s a new structure, so this [the introduction of cell legislation] was the natural outcome of how the department can use captives to make Georgia a better insurance domicile.”

As the number of states introducing favourable legislation shows no signs of slowing, the landscape for cells is somewhat different in Europe.

Gibraltar, Malta, the Isle of Man and Guernsey all boast cell legislation. However, well-established captive homes, such as Luxembourg and Dublin, are yet to introduce such measures.

Back in 2015, Captive Review exclusively reported that Luxembourg was considering plans to introduce a facility to licence protected cell companies (PCCs).

Although the other European domiciles were looking at PCC’s, the jurisdiction eventually decided against introducing cells, which could have been due to the uncertain geopolitical climate at the time, according to White Rock managing director Dermot Finnerty.

He explains: “I can obviously only speak from White Rock’s point of view, but I believe with the changes in the geopolitical climate, factors such as Brexit for example, it has created a change in the last few years.”

Changing insurance market
The insurance market is on the brink of change however, and Europe could be about to turn a corner in its utilisation of cell structures.

“With the changing of the insurance market, ie the hardening, insureds are being forced into thinking about capacity,” says Finnerty.

“For example, some of our clients have opted to fill gaps in their insurance or reinsurance towers. We’re seeing rising premiums, which is prompting rising retentions. Companies without captives or cells are being forced to look at them. We’re certainly seeing a lot of interest in the cell.”

As rates across business lines continue to increase, the cell structure is attracting interest from many different sources and alternative asset classes, Aon Insurance Manager director Noel McNulty says. The company is currently experiencing interest from the private equity industry as it looks to maximise the value of their respective portfolios.

He explains: “Traditionally private equity did not utilise captives primarily due to management time commitments and capitalisation, but with their portfolio companies dealing with rising deductibles, private equity funds see an ability to use a cell captive to catch underwriting profit while the structure also allows the segregation of a portfolio of risks by line of business or fund asset.”

Evolving use
Despite being introduced as a way to open up the mid-market to alternative risk, the use of cells has evolved since they were first introduced in Guernsey in 1997.

In 2015, changes to Cayman’s Insurance Law and the introduction of the Insurance (Portfolio Insurance Companies) Regulations permitted, for the first time, licensed insurers established as segregated portfolio companies (SPCs) to incorporate one or more of their cells as a portfolio insurance company (PIC).

Scrivener played a central role in the development of the PIC concept and implementing the legislation and has since experienced an ever-increasing interest in them.

He tells this publication: “When we were developing PICs, while we were sure there would be market demand, it was obviously difficult for us to predict just how much interest there would be in them and whether there would be take-up in a big way. Four years on, we are seeing a very healthy level of interest.

“The particular attractions for many seem to be the fact that, unlike a cell, the PIC is a legal entity in its own right, which provides clarity and a greater sense of ownership. Additionally, the fact that a PIC has its own board whereas a cell must be governed by the overarching SPC board on which the cell owner rarely has representation.

Reversing roles
Cells are continuing to attract even the largest companies. As previously mentioned, while they are traditionally used as a way to test out the alternative risk market, McNulty claims they are also being used as a tool to free up capital for companies with fully-fledged vehicles already in place.

McNulty explains that some are looking to transfer legacies to cells then closing the standalone. This allows them to continue controlling their own risk retention and claims after returning capital to the parent.

Future use
In the years ahead, sources interviewed for this article largely agree that interest in cells will continue to increase.

“My own hunch is they will definitely continue to grow in number,” predicts Scrivener. “Looking at Cayman specifically, there’s almost as many cells now as there are captives.

“PICs are obviously still developing and in terms of appetite for them, we continue to experience a regular flow of enquiries.”

Richard Le Tocq, CEO of independent captive insurance manager Robus Group says he is seeing an increasing interest in cells to facilitate insurance-linked securities (ILS) transactions in Guernsey.

“I would say one of the most common use of the cells we deal with now is as a transformation vehicle for the ILS market,” he reveals.

Le Tocq adds that while the industry is still mainly made up of standalone captives, the track record is such that cells are increasingly seen as a popular solution.

5-6 November 2025

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