Captive Insight Vol I | Page 21

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change to substantive law which would
have taken much longer to implement.

Whilst PICs were developed to address
the intra-cell contracting problem and
provide greater certainty as to the U.S.
tax status of an offshore insurance
company cell, PICs have a number
of other benefits over a traditional
cell. Although they would have to
be approved by CIMA, the members
of the board of directors of the PIC
need not be the same people as the
members of the board of directors of
the SPC insurer itself. This provides
governance flexibility and gives a
voice at the board table for cell owners
which they typically do not have with

a regular SPC because of the fact that
there is a single board at the core level
responsible for the affairs of all cells
of the SPC. For third parties unfamiliar
with SPCs and the cell concept, a PIC is
probably easier to understand than a cell
simply because it is a separate company.
A PIC can also transition more easily to
a stand-alone captive than a cell because
it is a separate legal entity with its own
constitutional documents and board of
directors. Therefore, the transition is
likely to be much less disruptive than
would be the case with the hiving-off
of a cell. There is very limited judicial
authority in any jurisdiction surrounding
the legal efficacy of the ring-fencing
concept in a traditional cell company
and whilst legal experts generally
agree that the concept will withstand
close judicial scrutiny in the case of a

“

“

However,
the
most
important
difference with the Cayman model is
that cell incorporation is achieved by
a separate company being established
by the SPC underlying the relevant
cell rather than the cell itself taking
on incorporated status. Cayman has
adopted a more conservative solution
than competitor jurisdictions, one that
is based on clear and well-established
principles of corporate law. An SPC
insurer that wishes to incorporate one
of its cells will set up a regular Cayman
exempted company – called a portfolio
insurance company or PIC for short
- which will be owned by the SPC
insurer on behalf of the cell in question.
Effectively, the cell will own the PIC
and the PIC, for all practical purposes,
will replace the cell. So if the cell has
an existing insurance program, going
forward, that program will be operated
by the cell’s PIC and no longer by the
cell. A PIC is simply a subsidiary of the
SPC but tied to a particular cell of that
SPC, a concept which can readily be
understood by parties dealing with an
SPC and its PICs. Only one PIC can be
established under each cell.

Cayman has adopted
a more conservative solution
than competitor jurisdictions,
one that is based on clear and
well-established principles of
corporate law.

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