The Protected Cell Company (‘PCC’) is considered a highly attractive structure in the field of insurance. Upon the advent of Brexit, Malta became the only EU Member State to cater for this innovative structure. But what is it?

Regulated by Subsidiary Legislation 386.10 of the Companies Act, a protected cell company is an insurance vehicle consisting of two essential parts – the ‘Core’ and the ‘Cell/s’.

The Cells are created by the issue of cell shares and maintain their own assets and liabilities, that is, separate from other Cells within the structure, and the Core. However, the Cells are not vested with separate legal personalities.

In short, the PCC is a tool for insurers and insurance distributors to obtain one license at PCC level – thus facilitating new and ringfenced business under the umbrella of protected Cells.

So, how does it work?

A PCC may either be formed at the outset or, converted into one by the creation of one or more cells at a later date. The PCC has non-cellular assets (pertaining to the Core) and cellular assets (pertaining to the respective cell/s).

Cells are created having their own name or designation and operate within the PCC structure. Therefore, they are bound both by statutory requirements and by contractual duties towards the PCC.

The Cell promotors may be issued with cell shares allowing them to participate in the receipt of dividends generated from the activities of their particular cell.

Each Cell is treated separately for tax purposes.

What makes the PCC so attractive?

  • Licensing Process: As such, all insurance and insurance distribution activities require authorisation by the Malta Financial Services Authority. However, setting up a Cell within a pre-licensed PCC structure would generally result in a significantly shorter process for the promotors to begin operations. This is because the foundations would have already been laid out by the authorised PCC.
  • Costs and overheads: The PCC may act as a hub for core services such as administrative, compliance, training, accounting and back-office services reducing costs and overheads. This saves Cell promotors from having to recruit and engage a multitude of service providers at start-up and throughout operations.
  • Capital Requirements: Cells have a minimum cell capital requirement of €19,510. Thus, so long as the PCC (inclusive of cell share capital) reaches the statutory minimum capital for licensing, the Cell need not itself reach the minimum own funds requirements expected of a standalone insurer or intermediary.
  • Continuing obligations: Establishing a PCC structure spreads the ongoing regulatory burden of the insurance company throughout the owners of the cells and the core.
  • Ring Fencing: the separation of cellular assets means that any claim brought in respect of one cell, will not be enforceable against cellular assets of a different cell within the structure. This said, it is worth noting that the core assets may be called upon in such case that the cellular assets of the identified cell do not satisfy the claim in question.

In conclusion, establishing a PCC structure spreads the regulatory burden of the insurance company throughout the owners of the cells and the core. It may serve as an ideal platform for new insurers and distributors to the Maltese or European Market, and also for the cover of specialised or isolated risks.

This article is not intended to constitute legal advice and neither does it exhaust all relevant aspects of the topic

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Amy Lee Micallef

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