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Cell Captive Future Uses

Butterworth predicts future cell structures

Antony Ireland 26/02/2014

Former Guernsey regulator Steve Butterworth – who is credited with pioneering the protected cell company (PCC) concept – predicted several potential innovations in cell structures at this week’s Captive Live UK conference in London.

“I see the future in structures that combine insurance and non-insurance business,” he said in his keynote address at the event, which attracted more than 350 leading UK risks managers and captive professionals.

Under one proposed structure, a company could write standard insurance business from the core of the PCC, with one cell a joint venture with contractors, another insurance-linked securities (ILS)-type cell bringing in investors to securitise catastrophe events, and a ‘duel trigger cell’ which brings in financial market capital which will trigger if there is a combination of severe events in a given timeframe. Additional cells could be added to write long-term insurance business such as employee benefit, Butterworth added.

“There could also be extensions to existing legislation in order to allow branches to the cells,” he said. “These could be used to complement the international branches of groups, used for individuals, or myriad non-insurance purposes.”

Butterworth went on to suggest that in the future, cells could revolutionise the financing of employee benefits, with each individual employee potentially owning a distinct cell, protected from the liabilities of the company and other employees.  

Two further suggested structures are “driver cells” – where an event drives one cell to trigger opposite reactions in two additional cells which already have in place the necessary capital to respond – and “filter cells”, whose purpose is to expire and then their assets and liabilities filter down into an ILS fund.

Speaking more broadly on the captive market, Butterworth added that he expects to see future captive uptake in Asia and Southern/Eastern Europe - the concept is still not yet widely understood – with employee benefits and SMEs two key growth sectors for captive business globally.

PCCs were developed in 1997, allowing separate insurance business to be incubated in distinct cells around a central core. The cell concept is now widely used in the global captive industry, and is proving particularly popular in the ILS space. 

Source: Captive Review (click here to read full article)

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