Celling mortgages

Vicky Beckett

A lack of availability in property related commercial insurance in the UK is pushing companies to establish cell companies. Insurance manager JLT has teamed up with the UK Home Builders Federation (HBF) and the British government to establish a protected cell company (PCC) for an extremely successful scheme that provides default insurance for home builders and mortgage lenders.

JLT oversaw 45 organisations buy cells in the HFB PCC between March and July 2012. “The need for the scheme was prompted by the current economic crisis,” said Nick Wild, managing director of JLT, Guernsey. “The insurance market has moved away from writing this type of coverage because of the very adverse experience in the US mortgage market in recent years. Right now there are very few options in the conventional insurance market for mortgage risk.” Wild added: “Hopefully this scheme will generate 60,000 sales by 2015, so the number of transactions to be processed and monitored is a major administration exercise.”

Alan Fleming, captive chair of the Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC), believes there is a lot of scope for the housing industry to utilise cell companies. “They are relatively cheap to run and an organisation can co-ordinate a lot of expertise into a company. Why go to the cost of having captive subsidiaries when a company can have control effectively in a PCC cell?”

Countryside Properties is one of the organisations that own a cell in HBF PCC. Bill Freeman, their group business risk analyst and internal auditor, said: “We joined the PCC because it gave us the opportunity to extend the market. I think it’s a great opportunity.” Because they are in a multi-user cell, the biggest risk for Countryside Properties is being reliant on the agreed selection process

of other parties joining HBF PCC, explained Freeman. However, Fleming said: “Each PCC cell in Guernsey is completely separate. The benefit is that it’s discreet, unlike Malta, where cells do share risk.”

Aon is currently talking with its public sector advisors on how it can provide alternative coverage for the housing industries. Charles Winter, Aon Risk Consulting head of finance, said: “The answers may not necessarily lie in a PCC. Housing associations continue to struggle with a fairly limited market. Aviva seems to be withdrawing from this market and becoming less competitive. That’s when people tend to look for other options.”

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