An avid follower of all insurtech startups and a critical thinker, he has also contributed several papers in organization wide technical paper contests.
- Bank Reconciliation - November 29, 2022
- London Bridge Risk:A Protected Cell Company - January 2, 2022
- Side Pockets in (Re) Insurance investments - July 20, 2021
What is London Bridge Risk (LBR), a Protected Cell Company (PCC)
A simple definition of PCC is that it’s a corporate structure that provides a single ‘core’ linked to individual separate ‘cells’ having their own assets and liabilities. The ‘core’ + the ‘cells’ still represent a single legal entity however for bankruptcy or restructuring purposes, each ‘cell’ is considered a stand-alone entity. A good example of this is the London Bridge Risk Ltd. (LBR PCC), which is a PCC instituted in the London insurance market to bring in capital from third parties into Lloyd’s syndicates to provide reinsurance cover to Lloyd’s members.
Why is it required
To modernize Lloyd’s market of Insurance, the London Market Authority (LMA) had launched a program called ‘Future of Insurance’ aimed at bringing synergies in the practices of Lloyd’s market and making it more efficient and orchestrating digitalization of the marketplace. In that respect, the market opened an opportunity for third-party capital, by qualified investors, to be deployed to add to Lloyd’s syndicated risk acceptance capacity by introducing a platform called London Bridge Risks Ltd., a PCC that offers collateralized reinsurance to the members at Lloyd’s.
How does it work:
The PCC is permitted to enter into multiple arrangements with Lloyd’s members individually (aka the ‘cells’) without the need for prior approval from UK regulators and without restrictions on the classes of business covered, as long as the contract complies with the Scope of Permissions (terms approved by FCA and PRA, financial market authorities of UK). A new ‘cell’ will be created in the PCC for each new reinsurance arrangement. The Assets and Liabilities of each cell are segregated from the other ‘cells’ and the ‘core’ of the PCC.
Rules
A few rules/restrictions do apply for capital providers to the PCC cells:
- Investors can only write Quota Share contract (up to 100% Quota Share) of the whole portfolio of a Lloyd’s member
- A single Annual return must be filed by the PCC, having the ‘core’ and the ‘cells’
- Lloyd’s members can participate in more than one Lloyd’s Syndicate and Cell will fully fund its liabilities by depositing full funds as a precondition, with Lloyd’s
- Beneficial ownership of the Assets deposited remain with the ‘Cell’
- PCC needs to perform the KYC, AML and UW reviews to commence operation of reinsurance capital by simply notifying the regulators.
There are accounting impacts in PCC that must be reviewed carefully
- PCC interacts with Lloyd’s at ‘Arms length’ with Lloyd’s, still the oversight and processes of Lloyd’s apply
- What accounting principle should be used based on the Reinsurance to Close (RITC) methodology at Lloyd’s and how is it disclosed to the investors and the governing body
References
- https://www.investopedia.com/terms/p/protected-cell-company-pcc.asp
- https://assets.lloyds.com/media/1104b1a2-6286-4f7d-8146-6a04f63a5e9d/LBRPCC_An%20Introduction%20FOR%20WEBSITE.pdf
- https://www.artemis.bm/news/nephilas-new-syndicate-funded-via-lloyds-london-bridge-risk-ils-structure/
