Cayman answers US demand for cell transactions
Doubts over whether individual cells can be given tax elections and tax identification numbers rather than segregated portfolio companies has led to Cayman’s latest legislation.
The domicile released a proposal to give segregated portfolio companies (SPCs) the same benefits as incorporated cell companies (ICC) in other domiciles, due to industry demand.
Cells would be able to establish a portfolio insurance company (PIC) underneath the SPC, substituting for the cell but working on the basis of normal company law principles, with tax elections and identification numbers.
Paul Scrivener, partner and head of insurance group at Solomon Harris, believes the legislation is more practical than ICC legislation in other domiciles as there is an actual substitute for the cell. “It’s very clear for counter-parties what they’re dealing with.
“The perennial issue is that the business people are looking to allow cells to transact with each other.
“Every few weeks I get emails asking about this initiative from potential clients and captive managers. There’s a real appetite out there, that’s why we want to get this on the statue book as soon as possible,” Scrivener added.
SPCs will be able to incorporate one or more of its segregated portfolios by establishing a PIC under the cell. The PIC can then conduct the relevant insurance business instead of the cell.
PICs will not need to be separately licensed as insurance companies and, unlike traditional SPCs, the PIC will be a separate legal entity.
Under this legislation a PIC can easily transition into a captive. This allows companies to contract with other cells or PICs within the same SPC to facilitate reinsurance, quota sharing and pooling.
Scrivener said he has never been very comfortable with Guernsey’s model of ICCs. “The concept of being able to incorporate a part of an existing company always seemed, from a prudence point of view, rather overreaching,” he said.