The Cell Structure: A New and Accepted Insurance Product

by Sir Trevor A. Carmichael, Q.C

Most modern insurance jurisdictions now possess legislative frameworks which specifically make provision for the ability of a body corporate to maintain separate accounts as well as to establish segregated cell companies (“SCCs”). The focus of this framework has been to develop a model in accordance with the established principles of relevant local corporate law, and thereafter to develop insurance sector specific safeguards in accordance with prescribed and accepted international prudential standards of regulation. In the context of insurance, such standards include regulations for the protection of investors, the safeguarding of policy holders, the shielding of persons to whom a fiduciary duty is owed by the insurance supplier, as well ass ensuring the integrity and stability of the relevant insurance systems.  Examples of permissible regulations include the annual licensing regime, the maintenance of minimum solvency and reserve/deposit requirements, as well as public disclosure requirements, all of which are housed within the various administrative authorities.  The central purpose of the new cell structures represents an effort to assist in the development of established and alternative insurance products and in this respect, the specific intention for target development has been the “rent-a-captive”.

The SCC creates separate “legal units” in one corporate legal person.  It is a creation of statute, and all rights of the owners of the cell, are derived as and from the corporate statute and the specific corporate instruments. The cell owners have a legal right to the cellular assets; the cell shares have a cell share capital; all dealings with the cellular assets and cell share capital of the specific cell are vested in the holders of the cell.

Generally, it is safe to recognise important key ingredients in the protection of cells.  Hence, where liability arises in relation to a particular cell, the primary liability lies against the assets of that particular cell and subject to contractual exclusion then against the non-cellular assets where the cellular assets are insufficient.  It never arises against the assets of another cell.  Secondly, where the liability arises in relation to the non-cellular assets alone, the creditor has recourse solely against those non-cellular assets.  Thirdly, cellular assets of a particular cell are absolutely protected from creditors of the non-cellular assets who are not creditors in respect of that cell, and who accordingly are not entitled to have recourse to the cellular assets attributable to that cell.  Finally, in a case where a creditor manages to recover sums from a cell where no liability is attributable such a cell, then the Company is required to compensate the affected cell from the non-cellular assets.

POSTSCRIPT

The presence of the cell structure in a wide variety of international financial centres such as for example Barbados, Cayman Islands, Bahamas and Guernsey represents a planning and protection tool with a range of insurance and corporate possibilities of almost limitless proportions.