Under a cell structure, all lines of coverage can be underwritten, subject to agreement between the sponsor and risk-sharing partners. This allows a company to create cells within its captive, effectively segregating lines of risk, subsidiaries, or businesses. The legislation provides protection for each cell and its owners against claims by creditors of other cells within the sponsored company. This addresses a perceived flaw in the traditional rental structure, where complete protection from all creditors is lacking due to joint liabilities within the sponsored company. With the protected cell approach, a sound "firewall" is established, offering substantial protection against creditors of other cells. This is different from a rent-a-captive in that a rent-a-captive is a standalone insurance company that allows multiple businesses to share the risks and benefits, while a protected cell captive is a structure within an insurance company that segregates the risks and assets of each participant. Prospective cell owners are required to provide information and references similar to those requested from owners of single-parent captives. The ownership structure of an individual cell can mirror that of a single-parent or group captive, or it can have no distinct structure at all, functioning solely as an insurance policy. As the cell operates within an approved company with established owners, officers, directors, risk partners, and service providers, it essentially functions as an approved insurance company. The ultimate success or failure, along with associated liabilities and responsibilities, falls upon the owners of the cell. Regulators seek knowledge about the composition of each cell but rely on the sponsor to ensure legitimacy and competence. Each cell is required to provide its security against future claims on its specific risks. This allows for multiple risk-sharing partners to be involved with the sponsor. Additionally, the cell may have a different reinsurance attachment point compared to other cells within the holding structure. This aspect makes the segregated cell structure attractive to heterogeneous groups or groups with members of varying premium sizes. However, it also adds complexity to the process and increases frictional costs. In summary, the Segregated Protected Cell structure, or sponsored captive, offers distinct advantages such as enhanced creditor protection, flexibility in ownership structure, regulatory compliance through the sponsor, individual security posting, and the ability to accommodate diverse risk-sharing partners. However, it also brings complexities and increased costs to the overall process.
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