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Intelligent Insurer Magazine Interview

EU Protected Cell Companies mean savings - Intelligent Insurer Magazine speaks to Ian-Edward Stafrace of Atlas Insurance PCC, about the benefits of using protected cell companies. 

What kind of advantages do protected cell companies offer at the moment and how will that be further developed when Solvency II comes into effect?

Protected Cell Company (PCC) structures offer an alternative to the set up of standalone insurers, reinsurers or captives and can result in significant cost and capital savings, even more so once Solvency II is implemented. 

A promoter may write insurance through a cell using the non-cellular core capital of the PCC to satisfy the minimum EU capital requirements. 

With Solvency II under Pillar I quantitative capital requirements, unlike standalones which require minimum €2.3m capital, no absolute minimums apply to cells since such is handled by the PCC core. E.g. promoter with €1m annual premium could sufficiently capitalise a cell with €200k depending on cell specific risks, reinsurance and other factors. 

PCCs with active cores, such as Atlas, can lend diversification benefits to cells by allowing secondary recourse to their cores, further lowering capital requirements. 

Cells also allow smaller entities access to the lower cost & more flexible reinsurance market. 

Solvency II Pillar II governance requirements and Pillar III reporting requirements would be handled by the PCC as the single legal entity. Cells therefore benefit from lower shared costs while retaining full protection of their assets from any unforeseen financial problems of other cells or the core thanks to the robust Maltese PCC regulations. 

What kind of business should consider using a protected cell company? 

Non-European insurers have set up cells as fronting facilities in order to reduce their EEA fronting costs. 

Organisations have established cells as captive risk financing vehicles. Atlas was the first PCC to host an insured owned cell writing own motor fleet insurance directly to UK, with no fronting costs, taking advantage of reinsurance market access. 

Businesses not typically from the insurance sector have created cells to sell insurance to third-parties in the EEA. By example, Atlas hosts a cell owned by a large hotel chain which sells insurance as an optional bolt-on to hotel bookings. Another cell, sells optional accidental damage insurance when the cell owner leases out property.

Small mono line insurers struggling with Solvency II requirements could convert to cells as an alternative to consolidation or closure. Re/insurers have set up cells as reinsurance/retrocession facilities. Cells can be created to handle run-off business or for special purpose applications by facilitating access to specialist risk-bearers. 

Why Malta? 

Owning a cell in Malta, the only EU member state that offers PCC legislation, enables direct writing of risks across the EEA through passporting. 

Malta maintains a strong stable economic and political environment. Its approachable regulator and representatives in Brussels ensure that Malta’s interests are factored in EU’s decision making process. Cell shareholders can benefit from an OECD compliant tax efficient environment with additional peace of mind that local regulations are EU compliant and that Malta benefits from double-tax treaties with over 60 countries.

English is the main business, legal and contractual language. Malta offers a central European time zone and excellent flight connections. We have a large growing community of skilled professional insurers, risk and insurance managers, legal firms and audit firms including the big four. 

As a leading Maltese insurer, Atlas PCC’s active core allows greater flexibility for prospective cell owners to set up third-party writing cells as opposed to typical PCCs in other domiciles which tend to prefer not to take any risk on their core capital. 

Atlas, an independent PCC, also provides insurance managers the opportunity to manage cells introduced by them. 

How do you see the protected cell company market in Malta developing in the future?

In 2006 Atlas was the first EU PCC and the first conversion in the EU of an insurer to a PCC. In 2008 Malta saw the first PCC migration from Gibraltar to Malta. Each year we see significant growth in the number of PCCs, protected cells and enquiries. I feel this trend will keep growing especially as companies seek alternatives to having a standalone under a Solvency II regime. 

We will also see more third party writing cells and more captive cells writing compulsory classes leveraging the unique advantages Malta offers in terms of regulations and active core PCCs versus non-EU domiciles.

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