A Protected Cell Company (PCC) is a corporate entity established under specific legislation (Protected Cell Companies Act 2001). The structure peculiar to the insurance PCC allows third party entities or persons to own or use a Cell within the PCC for the purposes of underwriting insurance portfolios, without the results of that portfolio affecting or being affected by the profitability in other Cells within the PCC. Whilst each Cell does not have a separate corporate legal identity as such, nevertheless accounts are prepared for each Cell, and dividends can be paid to Cell owners separately.

As the PCC as a whole is the legal entity, the Gibraltar regulator considers the PCC’s solvency requirement as a whole, rather than Cell by Cell, which enables the Cell owner to avoid the relatively high Minimum Guarantee Fund requirements imposed on a stand-alone company. In comparison with a stand-alone vehicle, the PCC can also achieve economies of scale relative to management costs, investment charges etc.

In Gibraltar, a PCC is considered the same as a normal insurance company licensed by the Financial Services Commission (FSC) and therefore has access to the Single European Market for insurance, following notification in the usual way into the relevant EEA territories.

The Gibraltar legislation is based on the similar Guernsey law, and is therefore familiar to anyone who has experience of Guernsey PCCs.

A PCC consists of a Core and a number of Cells.

The Core is formed by the issue of voting ordinary shares (usually “A” shares), whose holders are the controllers of the company in terms of electing directors, corporate governance etc. Typically the Core Shareholders will deposit the relevant capital, sufficient to meet the regulatory requirements (currently minimum €3.5m) and establish and licence the company. Note that the capital actually deposited must include a margin for working capital in the initial stages.

The Cells are formed by the issue of non-voting redeemable preference shares, usually with a low nominal value. The way in which a Cell is formed depends on whether the Cell user wishes to deposit capital to fund the underwriting portfolio:

– Where the Cell user deposits capital, the Cell Share would be issued to the Cell user, and a premium paid on the share equivalent to the capital it is agreed will be deposited;

– Where the Cell user doesn’t deposit capital, the Cell Share would be issued to the Core Shareholders at its nominal value. The capital used to support the underwriting is deemed to be part of the Core Capital.

In order to set the PCC up, it is advisable to use the services of a lawyer specialising in this type of structure, and an insurance manager to assist with the licensing process. Having said that, once structure (share values, initial capital etc.) and legal documents (Memorandum and Articles of Association etc.) are agreed, the actual incorporation can be quite rapid.

To enable the PCC to write insurance business, the FSC will require a licence application in the same way as for a normal insurance company, though it will be accepted that the business plan may be somewhat more speculative. The application consists of a Form 1 questionnaire, copies of all legal documents, a financial business plan based on business projections and full information on all controllers (shareholders, managers etc.).

Once the PCC is established, business written in each individual Cell has to be subject of a short-form application to the FSC. The FSC has a fast-track system in place to process such applications.

There are two principal uses for a PCC in the Gibraltar insurance market:


The ability of the PCC to write into EEA territories is key to this use. Where a commercial client wishes to use certain insurers/reinsurers to fill their insurance programme at a desirable price, but some of the carriers do not have an EU licence, the PCC can issue cover through a Cell, using the PCC’s passport, reinsured 100% to the desired carrier.

Retained Business

Where a client is looking for an alternative to a stand-alone captive to write a relatively small portfolio of captive business, a Cell can provide a capital- and cost-effective option.

As an aside, the regulator will look for the PCC to write at least some retained business so that it fulfils the requirement of being a genuine risk carrier. This can be achieved by placing a low risk area of cover, for example a high level excess line.

Note that the Gibraltar regulator will NOT currently allow the PCC to be used for writing of mass risks in the public domain e.g. broker portfolios of motor business. His view is that a PCC should only be used by a “sophisticated buyer of insurance” who understands the issues inherent in using a PCC facility.

The clients most likely to be interested in using a PCC facility will be medium to large corporate entities, either filling gaps in their broad insurance programme where insurers need a European fronting arrangement, or wishing to establish a risk financing programme, but without the critical mass or perhaps corporate desire to establish a stand-alone captive.

The most significant risk, especially in fronting portfolios where high levels of exposure could be written primarily by the PCC, is the failure of the collateral for the Cell, i.e. the 100% reinsurance, in the event of a substantial claim.

Another risk between Cells is the possibility of a third party claim, especially one arising from a compulsory class, being driven through the courts. Whilst there has at yet been no legal precedent (mainly because safeguards put in place by PCC operators so far have prevented any cases being taken to court), it is still theoretically possible that a foreign court (i.e. one that is not necessarily bound by the home domicile statute, which clearly separates cells) could enforce a judgement that drives through the Cell boundaries and impinges on capital in Cells which are not the subject of the claim.

The PCC Act provides for segregation of cell assets, but does not, in the absence of proper contractual structuring, prevent a claim against a Cell spilling through to the Core, which could then affect Core Shareholders’ assets.

A PCC is a flexible structure suited to certain types of insurance requirement, with the benefit of a relatively low cost, low capital usage and low management involvement. Care has to be taken to be fully informed of the specific risks involved in participating in a PCC, and the possible arrangements that can be put in place to mitigate that risk.

Gibraltar’s position in the Single European Market gives it a strong proposition for combining the use of a PCC to write into European territories from a well-regulated domicile with a low tax base.

Chris Johnson is a director of Robus Risk Services (Gibraltar) Limited and Chairman of the GIA (as well as Webmaster!)

Nigel Feetham and Grant Jones’ second edition of Protected Cell Companies: a guide to their implementation and use has been recently published

Further information about the book can be found on the publisher’s website here.

Robin Amos’ review of the book is here.

Robin Amos’ article on PCCs, Solvency II and Gibraltar is here.