Monday, February 26, 2024

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Singapore PCCs would lower barrier to entry, but “complicated” to introduce

The potential introduction of protected cell company (PCC) legislation would be complicated for Singapore, and more likely to be driven by the insurance linked securities (ILS) market, but would lower the barrier for captive entry in the domicile.

Singapore is the region’s largest captive domicile, with 82 pure captives active in the jurisdiction at the end of 2022. The idea of introducing PCCs has been discussed by industry and the regulator for some time, but has never materialised.

“The legislation has to fit into the existing legislation governing such matters as forms of insurance, corporate structures and income tax,” George McGhie, independent consultant and strategic adviser to Artex International, told Captive Intelligence.

“If you look at the time and effort and cost of the work to introduce PCC legislation, the potential returns to Singapore in terms of number of corporate cells and premium that might be created, could be quite low.”

McGhie said that PCC legislation could be more justified as a means of expanding the ILS offering into collateralised reinsurance alongside catastrophe bonds which have developed “rapidly” in recent years.

He added that PCC legislation had been reviewed by the Monetary Authority of Singapore (MAS) going back around 30 years.

“So far, they’ve not taken any step to introduce PCC legislation, and any moves to do so are more likely to be driven by the ILS sector than by corporate risk demands, where there’s not really a great drive for it.”

PCC perks

A primary advantage of PCC legislation is allowing a lower barrier to entry for companies who may never have had a captive before or are too small for a single-parent structure.

“What is undeniable is that cell regulation would lower the barrier to entry in terms of risk managers and corporates wanting to test out a captive strategy or dip their toes in,” Kelvin Wu, head of insurance at Singapore-based Weybourne Holdings Pte Ltd which owns Dyson Group, told Captive Intelligence.

“It also allows you to experiment a little bit more in terms of the type of risk that you want to put through a captive, perhaps you want to explore third party risk and so and so forth.”

Labuan is the only domicile in the region that allows for PCC structures, with the legislation being introduced in 2010.

Captive Intelligence understands that there are five additional PCCs currently in development, which are expected to be established in the near future.

Wu noted that the regulation in Singapore is currently “quite vanilla” as it only allows for a wholly-owned captives.

“Fortunately, that fits into the structure and the strategy that we had, but if we were wanting to explore other captive structures that perhaps includes a cell and that sort of thing, then Singapore would be a little bit more challenging,” he said.

Lawrence Bird re-joined Marsh Captive Solutions in May as captives consulting leader for Asia and said that as Singapore currently does not have cell legislation, for businesses that want to use a cell, he is seeing them established primarily in Guernsey, Bermuda or Labuan.

“The latter essentially being the only domicile in the region with cell legislation,” he said.

Ludan Wang, head of corporate risk and broking in Singapore for WTW, believes that PCC legislation should only be introduced with caution.

“I would be concerned if we ran PCCs in a non controlled manner, meaning we’re actually allowing sponsors to set up PCCs without a very clear strategy on what goes into the cells,” he said.