Cayman Islands: Segregated Portfolio Companies – Firmly in the Mainstream?

Last Updated: 12 January 2006
Article by Paul Scrivener

Paul Scrivener, head of the Insurance Group at Cayman Islands law firm, Solomon Harris, takes a look at the development of the SPC over the past seven years.

Seven years on from its introduction as a new statutory vehicle in the Cayman Islands, the segregated portfolio company, or SPC for short, is now firmly established and here to stay, particularly in Cayman’s thriving insurance sector. Indeed it was the insurance sector that gave birth to the SPC - in the early days it was a product only available to licensed insurers. It is now generally available throughout the Cayman financial services industry but its roots firmly remain in insurance and it is within this arena that its flexibility and multi-purpose application have come to the fore.

The Cayman captive insurance industry continues to experience explosive growth and one wonders the extent to which Bermuda nervously eyes in its rear view mirror the rapid acceleration of the world’s number two captive domicile. As at 30 September 2005 there were 725 captives in the Cayman Islands of which 102 were SPC's with total assets of more than US$1600 million held within those SPC's. So why has the SPC become an important part of the industry?

The SPC is the ideal vehicle in any situation where there is a risk of cross-class liability and therefore a commercial need to ensure that assets and liabilities are legally, and not just administratively, segregated. Most will now be broadly familiar with the type of vehicle the SPC is because equivalents, albeit with different names, have been developed in a number of other jurisdictions, including Delaware, Guernsey and Bermuda, and therefore today what was once "cutting edge" is now firmly within the offshore mainstream thereby giving a high level of comfort to those considering utilising the SPC for their own insurance programs.

The SPC is a particular type of company which is able to create one or more segregated portfolios or cells. A cell might be thought of as a sealed compartment within the company but is not a separate legal entity in its own right. There is no restriction on the number of cells that an SPC can create but each cell must be separately identified and include the word "Segregated Portfolio" in its name. The key feature of the SPC is that the assets and liabilities of each cell are statutorily "ring-fenced" from the assets and liabilities of all other cells of the SPC. It is this ring-fencing which makes the SPC ideally suited for captive insurers with multiple programs and in particular where programs are offered to more than one insured. Of course, where any of the SPC’s assets are held outside the Cayman Islands, legal advice should always be obtained in the relevant jurisdiction to ensure that the structure would be recognised and it is always desirable that all contracts and transactions entered into by the SPC are governed by Cayman Islands law and made subject to the jurisdiction of the Cayman courts.

Those who pushed for the introduction of segregated portfolio legislation in the Cayman Islands in the 1990’s had the rent-a-captive very much at the forefront of their mind. It is therefore no surprise that it has proved to be an important tool in this area enabling onshore companies to test the water with offshore alternative insurance programs without having to commit the cost, time and effort involved in setting up a "full-blown" captive of their own. More importantly, they have enjoyed a high level of comfort that the insolvency of any program operated by a fellow "renter" would not impact the assets of their own program, an issue that it was not possible to adequately address, from a legal point of view, prior to the emergence of the SPC. The success of the SPC in the rent-a-captive arena has led to the emergence of a number of entrepreneurial insurers setting up what might be called "captive incubators" for clients where not only cells are available but the entire infrastructure for a captive program including accounting, administration, legal and policy documentation.

Association captives too have shown interest in the SPC concept. The traditional association captive where different members hold different classes of shares in the captive can be of concern to more cautious associations where there is an unwillingness to share risk among the individual members and possibly nervousness about members in competing businesses being privy to each others’ insurance information. With an SPC each member owns their own cell and therefore enjoys a far greater level of protection and confidentiality.

How does the capital structure of an SPC work? The regulatory capital is typically provided by the insurer and forms part of what is known as the core or the general assets ie assets which are not held within any particular cell. The extent to which the owner of a cell will capitalise the cell at the outset will depend on a number of factors including, the nature of the program, the requirements of the regulator and the extent of the program’s reinsurance arrangements. Under the statutory ring-fencing concept, the assets of a cell are only available to the creditors of that cell and not to creditors of other cells or to general creditors of the SPC. A general creditor would typically be a person or entity that has provided services to the SPC as a whole rather than to a particular cell and professional service providers would typically fall into this category. A creditor of a cell first has recourse to the assets of that cell and if there is a shortfall, may have recourse to the general assets of the SPC unless either the articles of association of the SPC prohibit recourse to the general assets in these circumstances or the SPC does not have capital in excess of any minimum regulatory requirement. An insurer would not always protect the general assets from cell creditors by an appropriate exclusion in the articles because it is sometimes desirable to permit recourse to the general assets in order to demonstrate some element of risk sharing. Without statutory ring-fencing, the legal segregation of portfolios of assets and their associated liabilities can only be achieved by the use of contractually-binding non-recourse covenants from creditors or special purpose vehicles. Both of these alternatives add to the cost and administrative burden when compared to using an SPC structure.

In the case of most SPC’s the economic ownership of each cell will be evidenced by the issue of segregated portfolio shares in respect of each cell to the owner and these will typically be redeemable preference shares in contrast to the ordinary shares held by the insurer in respect of the general assets. The use of segregated portfolio shares provides a useful mechanism to facilitate the payment of income to the owner in the form of dividends and the repayment of capital by the redemption of shares subject, of course, to regulatory constraints. There will invariably be a shareholders agreement in respect of each cell between the insurer and the cell owner or owners. However, the legislation is flexible and the issue of segregated portfolio shares in respect of any cell, whilst usual, is not a requirement. For example, SPC’s setting up in the arena of life products and annuities, where a separate cell is established for each policy or annuity to offer added protection for policy holders, will often not go to the trouble of issuing segregated portfolio shares and the ownership is instead established on a contractual basis.

Whilst an SPC offers considerable flexibility, there are some important obligations which fall to the directors if the integrity of the structure is not to be compromised. The directors must ensure that the assets of each cell are properly segregated from the assets of all other cells and from the general assets (therefore, each cell must have its own bank account, custody account etc) and ensure that assets and liabilities must not be transferred between cells otherwise than at full value. Another important feature is that where transactions or agreements are entered into on behalf of a particular cell, it must be made clear on the face of the relevant agreement or document that the execution is on behalf of that cell. Failure to do so potentially exposes the directors to personal liability for the liabilities incurred under that transaction or agreement.

As the use of segregated portfolios has become more established and much more part of the mainstream, there has been something of a trend of some existing captives converting to an SPC. It would be wrong to say that there has been a stampede to go this route but there has certainly been some activity. This has been particularly prevalent in the healthcare area where some healthcare systems with a limited number of existing programs have seen the opportunity to develop additional "non in-house" programs, say, for self-employed physicians or other regional healthcare systems. Conversion is a relatively straight-forward process involving, amongst other things, the filing of a statutory declaration sworn by two of the directors, a balance sheet which is not more than three months old, creditor consents where the conversion involves the transfer of assets and liabilities into cells and the written consent of the Cayman Islands Monetary Authority.

The SPC has in the past seven years developed from a vehicle which was once seen by some as perhaps too much at the cutting edge and as offending basic principles of corporate law to the stage now where it is well recognised, within the mainstream of the offshore world and in a position to help further enhance the Cayman captive insurance industry.

Solomon Harris is a specialist commercial law firm based in the Cayman Islands with particular expertise in captive insurance and other alternative risk products.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions