Guernsey: ILS And Beyond: Where Next For Cell Companies?

Last Updated: 11 August 2014
Article by Fiona Le Poidevin

Most Read Contributor in Guernsey, September 2018

Fiona Le Poidevin of Guernsey Finance discusses the progression of cell companies in Guernsey and what the future holds for the industry.

Steve Butterworth is the former head of insurance regulation in Guernsey who, in that role, introduced the protected cell company (PCC) to the world in 1997. Delivering a keynote speech at Captive Live UK in February this year, he made a number of suggestions about how the cell company concept might develop in the coming years.

That one of his suggestions was a multi-use cell structure is probably not surprising given the way in which we see increasing convergence of the insurance and capital markets, primarily in the form of insurance-linked securities (ILS).


In Guernsey, we have already seen our PCCs and incorporated cell companies (ICCs) increasingly used for ILS structures. Figures from the Guernsey Financial Services Commission show that the number of international insurance entities domiciled in the island has grown from 687 at the end of 2011 to 790 at the end of March 2014 (see graph). This comprises 243 limited companies, 70 PCCs, 439 PCC cells, eight ICCs and 30 ICC cells (see table). There were 99 new international insurance entities licensed in Guernsey during the 12 months to the end of March, comprising eight limited companies, five PCCs, 73 PCC cells, three ICCs and 10 ICC cells.

While we continue to see a steady stream of conventional captive insurance vehicles, a significant number of the new entities relate to ILS transactions. Aon Captive and Insurance Managers in Guernsey and independent insurance manager Robus have been responsible for many of the new additions.

Robus' Hexagon PCC Group has established more than 40 protected cells in Guernsey, each writing one or more fully collateralised reinsurance contracts (sometimes known as private trades) in the nonlife space with assets at risk exceeding $450m. These see each cell enter into an excess of loss/aggregate/quota share reinsurance policy for various covers such as property (natural and non-natural perils), marine, energy, crop, premium reinstatement or prize indemnity. The cell is then fully funded by the investing ILS fund up to the amount of its maximum obligation under the reinsurance contract. Meanwhile, Aon's Guernsey office has been involved in more than 80 ILS transactions since 2006, with annual transactions increasing year on year. One of those is Solidum Re Eiger IC Limited, an insurance vehicle which listed bonds with a value of $52.5m on the Channel Islands Securities Exchange (CISE). The transaction was a reinsurance placement accepted by an incorporated cell from a US cedent. The transaction utilised a dual listing on the CISE and the Vienna Stock Exchange. It was also the first ever private catastrophe bond listed on any exchange worldwide.

Cell heritage

These examples demonstrate the way in which the use of cell companies has evolved markedly since the innovation of the PCC in Guernsey in 1997 and the subsequent introduction of the ICC with its heightened legal segregation.

They were first used as a tool within captive insurance. The segregation of assets and liabilities meant that parents established structures to write different lines of business through each cell and insurance managers set up their own PCCs or ICCs to 'rent' cells to different clients. The latter, in particular, helped make captive insurance more cost-effective and as such, meant that the concept moved from being just the preserve of large multinationals to increasingly viable for small and medium sized enterprises.

The fact that Guernsey pioneered the concept means that the island has developed significant experience and expertise in using cell companies.

For example:

  • Aon's White Rock Insurance Company PCC Limited was established in Guernsey as the first PCC in the world. Since inception it has been used by more than 100 corporations as a cell captive facility and grown to be the largest structure of its kind globally.
  • White Rock Insurance (Guernsey) ICC Limited – also Aon owned – was the first ICC in the world to be insurance licensed.
  • Guernsey-based Heritage Insurance Management (now Artex International) achieved a worldwide first in 2010 by amalgamating two PCCs – with 17 cells between them – into one.

Cell companies have now also become an established vehicle not just within the insurance sector but also other parts of the international financial services community, including wealth management and investment fund structuring. Indeed, the latest use of the cell company relates to the convergence of the insurance and capital markets, primarily in the form of ILS. Guernsey's cell company legislation has been specifically tailored to allow a particularly flexible use and is already being utilised for ILS deals, however, the growth of the sector means that multi-use cells are in demand.

Cells of the future

Under one of Butterworth's proposed structures, a company could write standard insurance business from the core of the PCC, with one cell a joint venture with contractors, another ILS-type cell bringing in investors to securitise catastrophic events and a 'dual trigger cell' which would bring in financial markets capital that will trigger if there is a combination of severe events in a given time frame.

He has also suggested that cell companies could potentially house various types of financial risk/product for financial conglomerates, albeit that the key to success with multi-use PCCs was to ensure watertight protection between cells.

This May's issue of Captive Review considered these ideas, including how Butterworth has suggested that in the future cells could revolutionise the financing of employee benefits, with each individual employee potentially owning a distinct cell, protected from the liabilities of the company and other employees.

Butterworth proposed a number of other ways PCCs could be restructured to optimise their efficiency: the creation of 'branch cells' (sub-cells belonging to individual cells within the PCC); 'driver cells' whereby an event drives one cell to trigger opposite reactions in two additional cells which already have the necessary capital in place to respond; and 'filter cells' whose purpose is to expire and then their assets and liabilities filter down into an ILS fund.

Pie in the sky?

Butterworth himself admitted some of these ideas may be "pie in the sky" but Malcolm Cutts-Watson, chairman of Willis Global Captive Practice – International, told Captive Review that "all these ideas have merit".

He added: "PCC legislation was created by Butterworth to be enabling, in that he did not have a clear picture at the time as to how PCCs could be used/evolve other than the obvious segregation of assets and liabilities.

I see his latest observations as ongoing evidence of this ability of enabling."

The GFSC, which has established an innovation unit, told Captive Review that it "is always willing to discuss new structures and innovative uses of the PCC legislation" and it looked forward "to working with industry as they develop these ideas". The Captive Review article concluded by saying that "the door is open for the next stage of cell evolution; now it is up to the captive management community to walk through it".

This is very appropriate because the Guernsey International Insurance Association (GIIA) has just commenced a series of blue sky sessions to ensure that Guernsey's insurance community is at the forefront of innovation in the sector. I should add that Butterworth is heavily involved in those discussions.


Guernsey introduced the PCC in 1997 and since then, the cell company has continued to evolve. Most recently, Guernsey's growth in PCCs, ICCs and associated cells has been in relation to ILS, where the island's experience in both insurance and investment funds, including listings on international stock exchanges, means it is ideally positioned to provide bespoke solutions to meet client needs. However, we're not resting on our laurels and we are once again ready to take up the mantel of pioneer.

An original version of this article appeared in Captive Review's Cell Company Guide 2014.

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.

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