PCC Frequently Asked Questions
1. Who is a PCC suitable for?
It may be an ideal solution for:
- An organization too small, based upon premium spend, to form its own single parent captive;
- companies who are unable or unwilling to join forces with others in the same industry in a group captive;
- companies who are required to segregate insurance assets and liabilities, examples include: by division or territory; regulated and non-regulated business;
- risks associated with a joint venture, a special project or a strategic alliance;
- companies wishing to access the reinsurance market; and
- companies with a legitimate need for confidentiality regarding their cell ownership.
2. What are the Similarities between a traditional Captive and a PCC Cell?
A traditional captive and a PCC cell operate in a very similar way:
both a captive and a PCC will be licenced insurance or reinsurance companies, and will be subject to all applicable insurance laws, rules and regulations;
both a traditional captive and a PCC cell have the potential of providing similar advantages to its shareholders, such as cost effective risk-financing vehicle; reduced overall insurance costs by retaining insurer profits and reducing overhead; access to the reinsurance market; cover for uninsurable or “difficult to place” risks; flexibility in program design; optimization of risk transfer and risk retention; and
both a traditional captive and a PCC cell typically require captive management services.
3. What are the Differences between a traditional Captive and a PCC cell?
While a traditional captive and a PCC operate in a very similar way, there are some differences between the two including:
- The risks within each PCC cell will be legally segregated from other cells. In a captive all business is “co-mingled”.
- the cost of a PCC Cell to a shareholder is likely to be less than the administration costs associated with owning a captive;
- the interests of the owner/sponsor of the PCC do not have to coincide in all areas with those of the shareholders of each PCC Cell;
- a PCC cell will typically require less of a time commitment from the shareholder than a captive, as the Board of Directors of the PCC and its captive manager typically provide the majority of administrative and management activities. These economies of scale can generally produce a lower operating cost to the shareholder.
4. How much control do I have over the cell?
As a cell shareholder, you would have general control of your cell and the insurance business written through the cell as specified in the Cell Participation Agreement. Certain activities including but not limited to writing new business in the cell, changing the cell’s business plan, changing reinsurers and declaring dividends will require pre-approval from the Board of the PCC and/or the domicile regulator.
5. Am I protected from other cells?
Yes, as a general matter, each cell stands alone and the assets and liabilities attributable to it are completely segregated from the assets and liabilities attributable to the PCC core and each other cell, subject to the satisfaction of all required conditions.
6. Can I buy all my insurance through the cell and then reinsure it out?
Yes, this can be done to the same extent that it can be done in a traditional captive, subject to the reinsurance being approved by the Board of the PC.
7. What protection can I buy to protect my exposure?
Reinsurance protection can be purchased for the risks in a cell in the same way as reinsurance protection is purchased by a traditional captive. Any reinsurance purchased must be approved by the Board of the PCC and must comply with the PCC’s minimum security requirements.
8. Is the cell more lightly regulated than other captives?
No, the insurance regulation for each of the cells is the same as that for a traditional captive that is licenced under the same jurisdiction as the PCC.