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Hard market prompts formation of cell captives


MIAMI – More policyholders are establishing protected cell captives as insurance rates continue to increase, a panel of experts said.

Buyers are becoming more sophisticated and are more frequently looking to directly access reinsurance markets via cell captives, they said during sessions Thursday at the World Captive Forum, sponsored by Business Insurance.

The growth of cell captives is part of a wider fragmentation trend in the risk-taking sector of the insurance market, which has seen significant increases in the number of managing general agents, said Joe Marcantel, a Lafayette, Louisiana-based director of Talisman Casualty Insurance Co., a protected cell captive.

It also reflects the growth in new risks related to technology, he said. “You have to understand, analyze and figure out a way to transfer that risk,” he said.

Huge increases in property insurance rates are also driving interest, Mr. Marcantel said.

“I wouldn’t be surprised to see 30 to 50 property cat-focused captives going up in the next calendar year,” he said.

In addition, insurance buyers are becoming more sophisticated and realize that their primary insurers offload much of their risks to reinsurers, so they are seeking to obtain cost efficiencies by accessing the reinsurance market themselves through captive cells, Mr. Marcantel said.

Concerns expressed about using protected cells rather than single-parent captives include the mingling of risks with other cell owners within a protected cell company, but the structures prevent that, said Jeff Simpson, a Wilmington, Delaware-based partner at law firm Womble Bond Dickinson (US) LLP.

“The key feature of cells is the segregation of assets and liabilities and what that means is that whatever is in your cell is protected from whatever else is going on in the company,” he said.

Cells also offer a route into captives for owners that may not be comfortable forming new companies, said Rich Serina, Melville, New York-based director of risk management and ERM at Canon USA Inc., during another session at the conference. Canon formed a protected cell in 2018.

“We don’t have various actual companies within our organization, so if we’d wanted to go ahead and form a single-parent captive with its own board and all the things that are associated with that, I don’t know if that would have been as well received,” he said.

The protected cell also has lower costs than a single-parent captive, with most of the work being carried out by the existing risk management department, Mr. Serina said.