PCCs: a Guernsey success story
When talking about Guernsey’s success stories in the world of financial services, few can match the pioneering introduction of the cell company concept back in 1997.
The legislation, the Protected Cell Companies Ordinance, 1997, celebrated its 20th anniversary on February 1 and is widely regarded as Guernsey’s go-to example for financial innovation.
With Guernsey being the first to adopt the cell company concept, the island has developed a world-class infrastructure for its application, supported by a range of lawyers and accountants with the highest level of expertise and experience in utilising the structure.
For example, Aon’s White Rock Insurance Company PCC Limited, which was established in Guernsey in 1997 as the first protected cell company (PCC) in the world, has now been used by more than 100 corporations as a cell captive facility and has grown to be the largest structure of its kind globally.
Stewart McLaughlin, executive director at Aon Insurance Managers (Guernsey), who is very familiar with the White Rock structure having helped to expand the brand into Europe, believes Guernsey’s PCC legislation has been adopted in some 40 jurisdictions worldwide with little variation.
“Other jurisdictions have changed the name in an attempt to differentiate, but effectively all ‘PCC’ legislation globally has been based on that originally formulated in Guernsey,” says McLaughlin.
The structure’s key feature is the legal ring-fencing of designated assets and liabilities it offers within the PCC so that each cell acts as a separate entity while sharing administrative efficiencies with the PCC core.
“The cell owner can concentrate on the business of the cell and the cell sponsor, for example Aon in the case of White Rock, manages the core,” explains McLaughlin. It means the cell sponsor and the cell owner work in partnership and are perhaps more closely aligned than in a traditional captive and insurance manager relationship.
Speed of establishment is another positive of the PCC, as the ability to establish cells quickly and to use them to provide insurance and risk financing solutions is a tangible benefit to corporates worldwide.
In addition to White Rock, Guernsey’s cell company expertise has been evidenced regularly since 1997. The most notable examples include Heritage Insurance Management (now Artex Risk Solutions) achieving a worldwide first by amalgamating two PCCs—with 17 cells between them—into one in 2010. In the funds industry, Guernsey also hosted the first-ever conversion of a PCC to an incorporated cell company (ICC) during a process which created the world’s largest ICC mutual fund.
While they were initially introduced for use in Guernsey’s captive insurance sector, Richard Sharp, partner at Bedell Cristin, says the ability also to use PCCs in the funds sphere has only added to their appeal. Cell companies are often used as umbrella investment funds with each cell being used as an investment vehicle for different asset classes.
Sharp explains that asset classes can be segregated according to the risk profile while having the economy of a single company.
“A PCC fund will usually have a main scheme document that addresses matters that affect all the cells and the launch of individual cells can then be covered in shorter supplements covering matters specific to the particular cell.
