Protected Cell Companies

Protected Cell ExampleMauritius has three types of protected cell companies (PCC’s):

  • Insurance
  • Asset Management
  • Funds or Collective Investment Schemes (CIS).

In order to best understand what a protected cell company is, it is worth looking at the history of the PCC.

Captive Insurance companies provide tailor-made solutions to different clients.  Typically, these were separated by preference shares within the captive insurance company.  The client would insure risk with the Captive Insurer, who would issue the client with a preference share.  This share paid a dividend based on the net earned premiums that remained after a certain amount of time.  Please see our other post about captive insurance.

A problem with the preference share arrangement arises when the insurer receives a valid claim that exceeds the premium income reserved for that client.  The claim would then eat up cash from other preference share allocations, resulting in the destruction of assets reserved for other clients.  There is no reliable way of insulating the risks allocated to one preference share from another

With a PCC, each client is covered by an insurance policy issued by a different cell, and premiums for that policy are paid into a separate bank account that belongs to the cell.  Surplus premiums can be used to purchase assets, such as shares, or even property.  These assets are allocated to that specific cell.  A PCC is a bit like a hotel   Each room is a Protected Cell, where the guest has the right to live for a limited amount of time.  Each guest has a different room, and when the mini bar in the one room is empty, the guest cannot raid another room.

With a Protected Cell Company, the shares of the company are divided into

  • Core Shares and
  • Cellular Shares.

The Core shares are the normal voting shares equivalent to ordinary shares.  They represent the interest of the owners of the PCC.

The Cellular shares have no voting rights outside of the specific cell and are held by the client.  These shares represent the voting rights within the cell (if held by more than one party) and pay dividends to the cellular shareholder.

The PCC Act, states that in the event of a creditor having a valid claim that exceeds the value of the assets in that cell, that creditor can also claim the Core Assets of the company.  The creditor cannot claim the assets of the other cells.  If this claim results in the destruction of the entire contents of that cell and all the core assets, the company will be liquidated.  But the good news in this worst case scenario, is that the other cells will be allowed to migrate to another PCC, or make distributions to their specific cellular shareholders.   This is the essence of a Protected Cell.

Asset Management and Collective Investment Scheme PCC’s have additional benefits:

  • Asset Management PCC’s can separate the portfolios of individual investors in a clear and transparent way, saving the investor the trouble of setting up their own entity to hold these assets.  The investor can control the assets or pass control to an Asset Manager.
  • Funds or CIS PCC’s can create sub funds each with a different prospectus.  For example one CIS PCC could have a Gold Fund cell, a Japanese Listed Shares cell, and an Index Linked cell.  Different cells could use different base currencies.  Investors could buy different amounts of cellular shares in different cells, resulting in a personally blended fund of funds.

Other important features of a PCC:

  • The cell is not an entity, it is simply a separate set of accounts in the books of the company.
  • Each cell should have its own bank account, or invest in clearly separated assets.
  • Each transaction that the PCC does on behalf of a cell must do so by clearly stating the name of the cell in that transaction.  An example would be:  “Big Insurance Company Ltd PCC – the ABC Cell” purchases 1000 shares of XYZ Corporation.
  • In Mauritius, the name of a Protected Cell Company will always look like this: “Protected Cell Company Limited PCC”
  • The creation of each cell is subject to the approval of the Mauritius Financial Services Commission.
  • The corporate tax rate in Mauritius is 15% but in certain circumstances, credits can be achieved to get the rate down to 3%.
  • It is usually cheaper and easier to form a cell than a separate Insurance Company, Fund or Asset Holding Company.
  • There is no limit to the number of cells in any PCC.
  • Different cells can use different base currencies.

In addition to forming PCC’s for clients, Frontière has three of its own PCC’s for approved clients to access.

  • Frontière Réassurances Ltd PCC
  • Frontière Asset Administrators Ltd PCC
  • Frontière Global Funds Ltd PCC.

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Categories: Insurance

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