Insurance Broking in a Protected Cell World

Insurance Broking in a Protected Cell World
Whilst certainly not the newest kid on the block, Protected Cell Companies (PCC) have now gained a lot of traction and momentum, with interest and new setups growing exponentially over the last couple of years. Malta, in particular, was certainly forward-looking when, back in 2004, it became the first (and till now the only) EU country to introduce a protected cell regime in its legislative framework. Whilst originating from a primarily "captive insurance” background, the Maltese experience is steadily showing that PCC structures are also excellent platforms for third party business. Such structures permit segregation between the shareholding of main structure of the company, known as the "core”, and the different cells within the company.
The assets of each individual cell are protected from the liabilities of the other cells and the core, whereas the core assets are exposed to the liabilities of all its cells. Together with all the cells within the "platform”, however, the core would be looked at and legally recognised as one legal person. This also applies in relation to the capital requirements, which are therefore covered by the core and cell assets as a whole, with only notional capital requirements applying at cell level. The core would also cater for all the governance requirements of the whole structure. 
Today we discuss PCC structures with Matthew Bianchi and Julian Boffa of Ganado Advocates, which has been at the forefront in terms of providing assistance to companies setting up PCC structures in Malta from the very beginning. 



Let us not beat about the bush…. PCCs are synonymous with economies of scale. A key factor and advantage of PCC structures is that they allow for the sharing of resources between the core and different cells, particularly capital, governance and human resource, with the added benefit of the segregation between cells. This, therefore, acts as a key to market access, particularly for those ventures (such as start-ups) which struggle to cover the base expenses or own fund requirements considering their initial low volumes. PCC structures are also ideal for business ventures which need to "dip into” the insurance expertise and know-how of market professionals, possibly because the venture promoters come from a non-insurance background. This happens either through the expertise of the PCC core or the outsourcing of functions to an insurance manager, or a mixture of the two. So, does this mean that established insurance operators cannot benefit from the advantages a PCC structure has to offer? Absolutely not. 
Whilst every business model needs to cater to its own specific situation, PCC structures are, for instance, ideal for large insurance groups or broker networks, including those targeting mergers and acquisitions particularly where there is a need to consolidate various operations across the EU into one structure, whilst at the same time maintaining segregation between the various "projects” or "portfolios”. Such segregation could be required because of different shareholding structures, or for the want of protecting a "stable” portfolio from a more "volatile” one. 

Insurance brokers considering investing in a PCC venture can look at a number of alternatives. First and foremost, the choice needs to be made as to whether the required structure is of a full PCC company, or whether to go for individual cells within existing PCC platforms. Once that call is made, the next decision is whether to retain the vests of an insurance broker, or whether to dip one’s toe into a risk-carrier’s role. Both are possible, including maintaining both structures concurrently to enjoy the best of both worlds. 



The big advantage at a cell level is that the working capital required is minimised to the notional own funds or capital requirement of the cell’s own business. It does not have to meet the legal minimum requirements, since these are already covered by the core. Therefore, the use of existing PCC platforms, such as for example, Highdome PCC Ltd, MDS Group’s insurance and reinsurance company, enables rapid set-up and almost literally a "hop-on” service. Furthermore, having the governance functions, including finance, already also covered by the core, a cell operation can really concentrate on the business itself. 
Both Ganado Advocates and Highdome PCC can assist companies in exploring their PCC options and advantages in more detail. If you are considering a new venture or a restructuring, PCCs should be definitely on your feasibility checklist. 



Julian Boffa is an Insurance Regulatory Advisor within the Insurance and Pensions team of GANADO Advocates, focusing mainly on re/insurance, corporate governance and regulatory matters. He regularly advises and assists insurance and reinsurance operations with their licence applications and other ongoing requirements. 


Matthew Bianchi is the Partner heading the firm’s insurance and pensions legal and regulatory team. As a leading specialist in insurance, he regularly advises insurance and reinsurance companies, insurance managers, captive insurers, protected cell companies (PCCs) and insurance intermediaries established in Malta or offering their services there. He is also active in the field of insurance securitisation and assisted with the establishment of the first ILS structures. Matthew sits as the Secretary General of the Malta Association of Insurance Brokers and the Malta Insurance Managers Association and represents the Maltese insurance industry as a Governor on the Board of FinanceMalta. As head of the pensions team, Matthew was instrumental in the development of a market for pensions in Malta and now supports and advises most of the pension trustees. He was also a founder of the Association of Pension Administrators. 
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