Guernsey: PCCs - A Guernsey Success Story

Last Updated: 6 August 2013
Article by Justin Wallen

Most Read Contributor in Guernsey, September 2018

PCCs Are An Increasingly Popular Option For Companies Needing Cost-Effective Solutions To Risk Transfer. Justin Wallen Of Hexagon PCC Group Outlines The Different Solutions Cells Can Provide.

As the managing director of the Hexagon PCC Group in Guernsey, I have witnessed first-hand how protected cell vehicles have become the most popular option for the types of business that we facilitate for our clients. As an organisation we are focused on our control environment and are actually quite risk-averse when it comes to placing business into protected cells. We are not in favour of protected cells conducting direct insurance, particularly to consumers. We believe that cells are more suited to sophisticated counterparties and to reinsurance arrangements.

ILS transformer cells

A lot has been written about the growth of the insurance-linked securities (ILS) funds over the past 18 months, and certainly the ILS funds with which we have relationships have all seen a substantial increase in assets under management during this time as pension funds and other large investors continue to seek the non-correlated returns that an asset class such as ILS can bring. I saw this growth in funds heading into the ILS sector as an opportunity for the Hexagon PCC Group to specialise in assisting with providing transformer cell vehicles in Guernsey.

The basic premise is that ILS funds invest in protected cells within an insurance company, which can in turn enter into fully collateralised reinsurance trades. Our board of directors have been involved with well over 100 such transactions over the years and our specialism in these types of trades certainly gives comfort to our business partners. The process for such ILS transformer arrangements has been well documented and it is a tried and tested methodology that has been utilised in Guernsey for many years.

Our Hexagon PCC Group experience in this field over the past six months has seen a large number of protected cells being created for ILS transformer business across different protected cell companies (PCCs), for assets at risk well in excess of $200m. This year we have seen a move away from more traditional property catastrophe risks towards alternative risks such as marine and energy, crop and even prize indemnity reinsurance.

This is evidence not just of ILS funds becoming increasingly diversified in their investment strategy, but also that they are seeking higher returns via new and more unusual reinsurance risks as the sector sees more in-flows, putting pressure on the pricing of certain types of more traditional risk. Some 1 April deals coming to market appeared to be priced below the expected loss, which is clear evidence of the increasing amount of capital available to participate in these types of risks. None of the ILS funds we deal with were interested in taking on deals with those types of parameters, but it would appear that certain investors chasing yield were prepared to take such a risk.

We are confident that the growth in fully collateralized catastrophe reinsurance in Guernsey will continue based upon our platform of offering ILS funds a chance to manage their transformer cell service provider risk by using an alternative to their traditional facility, such that they therefore don't have all of their eggs in one servicing basket, both in terms of manager and domicile. At Hexagon we work responsively to each transaction in order to speed up the deal completion process as much as possible, which is well received by brokers under pressure to get the reinsurance bound as quickly as possible.

Guernsey has also had some well publicized private catastrophe bond (cat bond) placements listed on recognised stock exchanges, demonstrating Guernsey's willingness to facilitate more of this type of ILS business, backed up by the excellent support of our regulator for transactions of this nature.

MGA risk retention

While it's true to say that the majority of new business we have facilitated recently is with ILS funds, it is by no means the only type of enquiry received as to how a cell can be utilised to take insurance risk. Protected cells have already successfully been used as a vehicle to provide managing general agents (MGAs) or Lloyd's brokers with the ability to start participating in the risks with which they are associated by having a risk-accepting facility. Such risks tend to be passed into the protected cell on a quota share basis by a fronting insurer as a means of participating in the underwriting profits of a particular book, or books, of business being managed by the MGA. A protected cell is a more cost-efficient vehicle by which MGAs can participate in these risks rather than having to set up their own stand-alone vehicle or direct EEA insurer.

By having some direct participation in these risks, MGAs are finding that they can increase the amount of business underwritten by the fronting insurer, as confidence in that book of business is buoyed via the MGA's participation. The fronting insurer will of course charge a ceding commission and, over time, perhaps request collateral for the risks being ceded to the unrated protected cell. However, with a stable book of business demonstrating sufficiently low loss ratios and, ideally, a short tail, this does not prevent the protected cell from generating underwriting profits. On more risky books of business, a stop-loss reinsurance policy is a way of reducing the MGA's downside risk when participating in the portfolio in this manner. A protected cell allows for faster and lower-cost entry and exit than the traditional captive alternative.

EU captive alternative

There is no doubt that having a captive licensed in the European Union (EU) is a costly and capital intensive exercise and a major barrier of entry to companies operating in Europe. The use of an EU-licensed and regulated insurance company to "front" risks into a Guernsey protected cell operating as a reinsurance vehicle would allow insurance business to be written into all EU/EEA territories. By utilising a fronting company, the cell captive is still able to retain the risks that the parent company wishes to self-insure but without the capital commitment, time and administrative cost of owning an EU direct writing captive. By forming a protected cell in Guernsey, companies can participate in a value for money captive vehicle. In my opinion, this structure offers a genuine alternative to owning an EU direct writing captive, both for those already incurring the time and expense of owning such a vehicle who are expecting those costs to only increase under Solvency II, and also for those considering establishing such a vehicle in the near future.

Captive run-off alternative

A protected cell is also a more efficient and cost-effective insurance vehicle to run-off captive risks when compared to keeping your incorporated captive vehicle open over several years. A captive subsidiary company in run-off incurs higher levels of annual costs than a protected cell achieving the same results. Once a protected cell is up and running, it benefits from participating in the shared costs of the PCC as a whole, such that significant savings are available on expenses including management and audit fees, regulatory costs and non-executive director fees when compared to a stand-alone captive vehicle. It's a simple way of reducing run-off costs and I'm surprised that more corporations are not taking advantage of this facility.

Traditional captives in decline?

I have certainly noticed that the appetite for traditional captive vehicles continues to wane from the peak activity levels we noted over a decade ago. Perhaps this decline is due to continuing soft market conditions, or regulatory, capital and other cost burdens reducing the efficiency of captives. A protected cell captive continues to offer reductions in many of the costs associated with the traditional captive set-up and in my view is still an attractive option for those looking to self-retain an element of their risks.

At Hexagon PCC we are very positive about the continued growth of our company as we position ourselves to provide services in what we see as industry growth areas. I would like to take this opportunity to thank the clients who have supported us since we embarked on this venture, without their support our success to date would not have been possible.

Justin Wallen is the managing director of the Hexagon PCC Group, which is part of the Robus Group of companies. He has unrivalled experience in managing PCCs and ICCs accumulated over more than 10 years in the insurance management industry. Justin is a Chartered Accountant based in Guernsey.

Originally published in Captive Review's Cell Company Guide 2013, July 2013.

For more information about Guernsey's finance industry please visit

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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