CAPTIVE REPORT: CAYMAN, GUERNSEY LEGISLATION DESIGNED TO BOOST FLEXIBILITY, CAPTIVE COUNTPosted On: Apr. 13, 1997 12:00 AM CST
ST. PETER PORT, Guernsey-Two new pieces of legislation in Guernsey will enable the domicile to offer captives more options and greater flexibility.
The Protected Cell Companies Ordinance 1997 took effect Jan. 29, making Guernsey the first domicile to offer this type of insurance facility. A protected cell company operates similarly to a rent-a-captive, offering participants many of the benefits of a group captive but with lower startup costs. A PCC offers more security to policyholders by isolating each participant's assets and liabilities as if they were a separate company, called a cell, doing business with the core company.
Members of a PCC contribute to the core capital of the central company, but their insurance business is not pooled and the assets are protected under law from the liabilities of other cells. Creditors of one cell will have access only to the assets of that cell. If those assets are exhausted, though, the creditor may attempt to secure the capital assets of the core cell.
Guernsey Superintendent of Insurance Steve Butterworth sees PCCs as a practical alternative for a company that cannot afford a standalone captive but wants more protection than traditional rent-a-captives offer.
One of the concerns about rent-a-captives has been that the intended protection of individual members from the liabilities of other members never has been properly tested. The PCC setup is intended to create such strict demarcation among cells that this concern is put to rest.
However, while captive managers think the idea is a good one, they acknowledge it is a new concept and will take time before it becomes a significant source of new business.
One of the rules that may help it get started is that existing captive companies can be converted into a PCC. Also, the Guernsey Insurance Commission says the expected uses for PCCs as insurers are extremely varied, "from those with a large core capital to those with a nominal founders' share; from those with a few large cells to those with thousands of small cells."
PCC applicants must submit a separate prescribed business plan summary and policyholder's profile for each cell. Participants can subscribe to one or many cells. The Insurance Commission emphasizes that apart from solvency and risk management, the principal regulatory focus will be on management capabilities. This means the insurance manager must demonstrate the necessary management expertise and technical backup to deal with the requisite segregation of assets.
Another long-awaited legislative change deals with migration, or redomiciliation. New legislation that Mr. Butterworth expects to have in place by June will make it easier for captives to transfer to Guernsey from other locations by doing away with the need for them to liquidate the former captive and then start fresh.
Mr. Butterworth says interest in this is keen, and "We are getting phone calls all the time asking when it will be up and running."
General requirements related to captive solvency are set out in the Insurance Business (Guernsey) Law 1986 and are unchanged from a year ago.
The minimum solvency margin is 18% of the first 5 million pounds ($8.3 million) of net premiums and 16% for anything above 5 million pounds. The minimum capital requirement is 100,000 pounds ($165,270).
Returns must be submitted annually showing audited annual accounts, the margin of solvency calculation, new business plans each year and a certificate from the General Representative-either a resident executive director of the captive or a captive manager
-declaring that the captive insurer has carried on its business in accordance with its application.
For captive insurance industry information, contact Steve Butterworth, Superintendent of Insurance, Valley House, Hirzil Street, St. Peter Port, Guernsey, Channel Islands; 011/44/1481-712801; fax: 011/44/1481-712010; e-mail: firstname.lastname@example.org .net