The Segregated Cell Company - Rewards and Rating

Kyle Rudder on Oct 16, 2017

With the segregated cell company, Barbados enhanced its legislative framework in respect of insurance services, to provide for both the ability of a body corporate to establish and maintain separate accounts and also the establishment of segregated cell companies (“SCCs”). A legislative model has been developed in keeping with the well-established principles of Barbados corporate law combined with insurance sector specific safeguards in accordance with prescribed and accepted international prudential standards of regulation. Hence, there are regulations for the protection of investors, the protection of policy holders, the protection for persons to whom a fiduciary duty is owed by the insurance supplier, as well as the assurances in relation to the integrity and stability of the insurance system. One specific purpose and intention in respect of the development of SCCs was the “rent-a-captive”. Barbados legislative amendments were therefore intended to allow and encourage the establishment of the offshore “rent-a-captive” insurance vehicles without the need for the creation of detailed creditor/insulated series shares.

Today’s Barbadian insurance manager may also be placed uniquely to interface with rating agencies in respect of the application made by one of its new managed entities. Generally, the manager will be required to obtain certain basic information before the relevant Rating Agency is able to proceed with an initial rating assignment. Such information will often include a five year business plan with which all parties agree and which includes but may not be limited to the following:

  • Policy statements on underwriting criteria, investment guidelines and risk management.
  • A description of the products offered, pricing standards and the company’s distribution and market strategy.
  • Financial projections, along with the underlying quantitative and qualitative assumptions and the anticipated utilization of capital.
  • Stress-tested capitalization which conservatively supports the assigned rating throughout the business plan.
  • Demonstration of a successful track record of operating performance relevant to the new venture’s core business. Experience with organizing new insurance ventures may also be factored into the process.
  • Experienced management and the appropriate staff and operational infrastructure to support initial activities and to meet regulatory and rating agency scrutiny.
  • Management, board members, strategic investors, investment bankers, actuaries and other advisers available for discussions with the Rating Agency and to provide comprehensive disclosure of requested information.
  • An established follow-up process to measure the effectiveness of the initial business plan and to monitor the company’s strategic and financial development.

The rating process for insurance entities generally involves many quantitative and qualitative factors which are placed into essentially three categories: balance sheet strength, operating performance and business profile. The methodology for rating new company formations will often use the same assessment of balance strength and business profile as is the case with established companies which receive the usual rating assignments. In the case of start-up ventures, there is however a natural lack of certainty and an established track record. Hence, in assessing the long-term sustainability of earnings and cash flow, greater rigor in the rating process is required.

The Barbados insurance environment benefits significantly from local entities which are internationally rated. For the rating adds value and credibility both to the entity and the jurisdiction.

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