What is a protected cell captive and who uses one?
A walled compartment inside somebody else's captive
Fenhua Liu defines a protected cell as a segregated account attached to a sponsored captive, each cell owned by its own participant. The separation is the whole point: assets, liabilities, obligations and surplus do not cross between cells, so one cell's surplus is not available to pay another cell's obligations. She says companies choose cells to save cost, and describes participants renting a cell that still behaves like their own pure captive while sharing the fees, the tax filings and the sponsor's structure.
Start with the shape. A sponsored captive is the container, and cells sit inside it, each owned by a participant. Liu's phrasing is that each cell is segregated from the core of the sponsored captive and from every other cell.
The separation is legal rather than administrative, and it is what makes the structure usable. Assets, liabilities, obligations and capital do not move between cells.
Key takeaways
A protected cell is a segregated account inside a sponsored captive, owned by its participant and walled off from the core and from other cells.
One cell's assets and surplus cannot be used to meet another cell's obligations, which is what makes sharing a container with strangers workable.
Participants rent cells to share fees, taxes and the sponsor's structure instead of forming and running their own captive.
The consequence is the sentence a prospective participant needs to hear: one cell's assets and surplus are not responsible for another cell's obligations. You are not exposed to the claims of the strangers sharing the container with you.
That is the difference between a cell and a group arrangement where members share risk. It also explains why the structure appeals to participants who would never join a group captive.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“They just rent a cell. It still act like their own pure captive”
Transcript
Read the full transcript 8 turns
Hostprotected cell companies? Is that a structure that's allowed in Connecticut? If so, who, what do you recommend or who is using protected cell
Fenhua Liucompanies? A protected self is in Connecticut by law. A protected cell is a segregate accounts. Basically, multiple cells attached to a sponsor captive. So each cell will be owned by each multiple participants because the participants. So each cell is segregated from the core of the sponsor captive, also segregated from other cells. So all the
Fenhua Liuasset liabilities, obligation, capital, surplus, they don't cross the board to share. So in other words, one cell, one cell asset like a surplus is not responsible for another cell's obligations to pay those obligations. So many companies prefer to use a protected cell company because it saved their cost, save their fees. Some companies do not form their own captive
Fenhua Liu. They just rent a cell. It still act like their own pure captive, but it just share the fees, the taxes, and the bigger shelter of we call the sponsor captive. So it's very flexible. I noticed that in this industry, it's more and more popular because it saved the cost. If you as a capital owner, you don't want to have a two pure
Fenhua Liucaptive instead. You want one sponsor captive, one captive manager, you know, all kinds of auditors report or text file is all you want to consolidate them, so which is very cost efficient. But it's still in the meantime, make sure every cell is responsible for their own liabilities claims
Host. That seems like a great structure, pretty efficient, and I can see why people are running to it. There
Fenhua Liuare many different
Fenhua Liuparticipants. Any public organizations or private industry, different companies, different type of companies, they all profit for profits or non-profit, they all can be a participant of a cell
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
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