1. What is a Labuan PCC?

A Protected Cell Company (“PCC”) is a single legal entity comprising a core, and a number of segregated parts, or “cells.” A PCC is formed by a sponsoring entity. The sponsor (in this case Archipelago) manages the PCC through a Board of Directors and provides minimum regulatory and operating capital (the “core”). Under the Labuan Companies Act 1990 Section VIIIB governing PCCs, this structure creates a legal segregation of the PCC’s assets and liabilities into a number of different cells and a central core. Each cell is completely independent and separate from the other cells, as well as from the core of the company.

The undertakings of one cell have no bearing on the other cells. Each cell is identified by a unique name; the assets, liabilities and activities of each cell are ring-fenced from other cells.

In a PCC, as a general matter, creditors of a particular cell only have recourse to the assets of that particular cell and not to any other cell or to the PCC core.

A PCC captive is a licensed insurance and/or reinsurance company organized and regulated pursuant to the insurance/captive laws of Labuan, Malaysia.

2. Who is a PCC suitable for?

It may be an ideal solution for:

  • an organization too small, based upon premium spend, to form its own single parent captive;
  • companies who are unable or unwilling to join forces with others in the same industry in a group captive;
  • companies who are required to segregate insurance assets and liabilities, examples include: by division or territory; regulated and non-regulated business; risks associated with a joint venture, a special project or a strategic alliance;
  • companies wishing to access the reinsurance market; and
  • companies with a legitimate need for confidentiality regarding their cell ownership.
  • 3. What are the similarities between a traditional Captive and a PCC Cell?

    A traditional captive and a PCC cell operate in a very similar way:

  • Both a traditional captive and a PCC cell have the potential of providing similar advantages to its shareholders, such as cost effective risk-financing vehicle; reduced overall insurance costs by retaining insurer’s profits and reducing overheads; access to the reinsurance market; cover for uninsurable or “difficult to place” risks; flexibility in programme design; optimization of risk transfer and risk retention; and
  • Both a traditional captive and a PCC cell have the potential of providing similar advantages to its shareholders, such as cost effective risk-financing vehicle; reduced overall insurance costs by retaining insurer profits and reducing overhead; access to the reinsurance market; cover for uninsurable or “difficult to place” risks; flexibility in program design; optimization of risk transfer and risk retention; and
  • Both a traditional captive and a PCC cell captive typically require captive management services.
  • 4. What are the differences between a traditional Captive and a PCC Cell Captive?

    While a traditional captive and a PCC cell captive operate in a very similar way, there are some differences between the two including:

  • The risks within each PCC cell will be legally segregated from other cells. In a traditional captive all business is “co-mingled”, there is a statutory protection for the cells instead of contractual protection in a traditional captive
  • The cost of a PCC Cell to a shareholder is likely to be less than the administration costs associated with owning a traditional captive;
  • A PCC cell will typically require less of a time commitment from the shareholder than a traditional captive, as the PCC central core will typically provide the administrative and management activities. These economies of scale can generally produce a lower operating costs to the shareholder.
  • 5. How do I incorporate a cell in the PCC?

    Initially, Archipelago PCC will work with prospective users of a cell to establish the feasibility of owning a cell and insuring certain risks through a cell. Assuming the prospective user of a cell elects to proceed with the cell, an application from the prospective cell owner/shareholder will need to be made to Archipelago PCC's Board of Directors (BOD) – the managers at Archipelago PCC will assist with the application process.

    This application will include a business plan and pro forma financials. Once this has been approved, the managers at Archipelago PCC will submit, on behalf of the cell owner/shareholder, a cell application, along with the business plan, application fee and pro forma financials, to Labuan FSA. Once Labuan FSA approves the application and the cell has been set up it can then write insurance / reinsurance business.

    6. What level of capitalisation is required in a cell?

    The level of capitalisation will depend on the requirements of the Archipelago PCC and Labuan FSA. Capital may be contributed in the form of cash or an approved letter of credit. Under certain circumstances, additional forms of capitalisation may be contributed with approval of Labuan FSA and Archipelago PCC.

    7. What’s the minimum premium spend?

    Archipelago PCC does not impose a minimum premium spend. However, the cell captive programme must be sufficiently feasible enough to provide the benefits desired and to cover its basic running costs.

    8. Where can I establish a cell in Archipelago PCC?

    Archipelago PCC currently owns a PCC cell captive insurance company based in Labuan, Malaysia.

    9. Where else can I have a cell in a PCC?

    There are more than 30 domiciles offering some form of PCC type legislation, including Bermuda, Cayman Islands, Guernsey and various U.S. domiciles.

    10. How much control do I have over the cell?

    As a cell shareholder, you would have general control of your cell and the insurance business written through the cell as specified in the Share Participation Agreement.

    Certain activities including but not limited to writing new business in the cell, changing the cell’s business plan, changing reinsurers and declaring dividends will require pre-approval from the Board of the PCC and the Labuan FSA.

    11. How much does a cell cost to run?

    The following costs will be incurred:

  • Minimum annual management fee of RM 20,000 or US 6,500 equivalent per cell to Archipelago PCC;
  • or
  • Management and administration services fee of 2% - 5% of gross written premium per cell to Archipelago PCC
  • whichever is higher
  • Processing fee of USD 500 for the feasibility study and reports.
  • Incorporation of insurance cell shares of USD 1,000 (100 shares).
  • These costs are subject to Archipelago PCC’s management approvals. The costs associated with these services are charged to our cells in the form of premiums. The above standard fees are negotiable based on programme complexity. For example, a smaller minimum fee might be possible on a very straightforward programme or policy. The fees cover costs for setting up a cell, normal legal and secretarial expenses, fees for audit, underwriting, management and accounting. Other expenses chargeable to the programme might include specific non-routine legal fees, investment management fees and specific travel expenses and reimbursements.

    Each cell of a Labuan PCC is also required to pay RM 10,000 as the annual fees to Labuan FSA on or before 15 January each year.

    12. Can I have more than one cell?

    Yes, you can have as many cells as you need but each cell must receive individual approval by Archipelago PCC and Labuan FSA. Each cell will need to be properly funded and capitalized.

    13. Am I protected from other cells?

    Yes, as a general matter, each cell stands alone and the assets and liabilities attributable to it are completely segregated from the assets and liabilities attributable to the central core and other cells.

    14. How much capital do I need to put in to get the cell running?

    The amount of capital required will depend on the nature of business to be written in the cell, premium and risk retention levels.

    15. Should I be concerned about the risk profile of the other cells/cell shareholders in the PCC?

    No, as cells are totally segregated from each other and the insolvency of one cell cannot impact another cell, the nature of the risks and the risk management controls of other cells should not be of concern to individual cell shareholders.

    16. Will Archipelago PCC buy reinsurance protection for the cell’s exposures?

    Reinsurance protection can be purchased for the risks in a cell in the same way as reinsurance protection is purchased by a traditional captive. Any reinsurance purchased will be transacted by Archipelago PCC in order to comply with the PCC’s minimum security requirements.

    17. Is the cell more lightly regulated than other captives?

    No, the insurance regulation for each of the cell is the same as that for a traditional captive that is licensed under Labuan FSA.

    18. Will a cell work for smaller/middle market companies?

    A cell may be the ideal solution for smaller/middle market companies as the administration cost associated with a cell captive will likely be less than with a traditional captive.

    19. Can I put different risks from different divisions within my company into the same cell or do I need multiple cells?

    The same cell may be used if there is no need for segregation of risks of the different divisions. Different cells may be used if there is a need for segregation of risks of the different divisions.

    20. How much of my management time is needed to run a cell?

    Very little. As stated earlier, a PCC cell captive is not a separate legal entity so individual cell does not have its own board of directors.

    21. Can I buy all my insurance through the cell and then reinsure it out?

    Yes, this can be done to the same extent that it can be done in a traditional captive and Archipelago PCC will transact the reinsurance placements.

    22. Can my PCC cell be converted to a single parent captive if my business grows enough?

    In Labuan PCC, a cell in itself is not a separate legal entity and therefore it cannot be converted into a traditional captive which is a distinct legal entity. However a cell owner could set up a traditional captive and transfer the risks in the cell to the newly formed traditional captive via a premium/loss/capital portfolio transfer.

    23. How much money will I make from running the cell?
    As with a traditional captive, this will depend on the profitability of the business written.