Protected cells and series captives: why structures matter in today’s market

Nate Reznicek (pictured), president and principal consultant of Captives.Insure, casts an eye over what has been happening with protected cell companies.

The captive insurance landscape has evolved rapidly, with protected cell companies (PCCs) and series captives (including series LLCs) emerging as innovative solutions for organisations seeking greater control, flexibility and efficiency in risk management.

As market volatility, regulatory scrutiny and the need for tailored risk solutions intensify, the choice of captive structure – and the nuances of domicile law – have never been more consequential. This article explores the similarities and differences between protected cell and series captive structures, their domicile-specific variations and how they compare to traditional group and single-parent captives. It also addresses potential conflicts of interest and common misconceptions that can cloud decision-making.

Understanding protected cell and series captive structures

Protected cell companies (PCCs)

A protected cell company is a legal entity that allows for the segregation of assets and liabilities into distinct “cells” within a single corporate structure. Each cell operates independently, with its own participants, assets and liabilities, legally insulated from the risks of other cells and the core company. This structure is also known as a segregated portfolio company (SPC) or segregated account company (SAC) in some domiciles.

Key features:

• Each cell is protected by statute from the liabilities of other cells.
• The core company provides the regulatory capital and infrastructure.
• Cells can be quickly established or dissolved, offering operational flexibility.
• Used for both rent-a-captive and sponsored captive arrangements.
• Series captives and series LLCs

A series LLC is a limited liability company that can create multiple “series” or sub-entities, each with its own assets, liabilities and business purpose. In the captive context, each series can function as a separate captive insurer, with legal separation similar to PCCs.

Key features:

• Each series is treated as a separate entity for liability and management.
• Series can be formed and managed under a single LLC, reducing administrative burden.
• Popular in domiciles such as Delaware, Tennessee and Montana, with each state offering unique statutory frameworks.
• Lower capital and operating costs typically correlate to lower minimum premium thresholds for participation, often as low as $500,000.

Domicile differences: how jurisdiction shapes structure

The legal and regulatory environment of a domicile significantly impacts the operation, flexibility and risk profile of both PCCs and series captives.

Protected cell companies

Offshore domiciles: jurisdictions such as Guernsey, Bermuda and the Cayman Islands pioneered PCC legislation, offering mature regulatory frameworks and international expertise. Offshore PCCs often provide greater flexibility in capital requirements and risk types but might face increased scrutiny from onshore regulators.

US onshore domiciles: states such as Delaware, Vermont, South Carolina and Tennessee have robust PCC statutes. Onshore PCCs benefit from proximity, regulatory familiarity and, increasingly, competitive capital and tax requirements.

Naming conventions: the terminology varies – PCC, SPC, SAC, ICC (incorporated cell company) – but the core principle of statutory segregation remains consistent.

Series captives

Delaware: the first US state to formalise the series LLC for captives, Delaware’s statute allows each series to be licensed as a separate captive insurer, with clear rules on governance, taxation and reporting.

Tennessee and Montana: these states have adapted their captive laws to accommodate series structures, sometimes blending features of PCCs and series LLCs for hybrid solutions.

Other states: adoption is growing, but legal recognition and regulatory treatment of series structures can vary widely, affecting enforceability of asset segregation and operational flexibility.

Comparing structures: PCCs, series captives, group captives and single-parent captives

Similarities between PCCs and series captives

• Statutory segregation: both structures provide legal separation of assets and liabilities between cells/series, protecting participants from cross-cell risk.
• Shared infrastructure: administrative, regulatory and operational costs are shared, reducing the burden on individual participants.
• Flexibility: new cells or series can be established quickly, allowing for rapid response to changing risk profiles or business needs.

Key differences

• Legal entity status: in PCCs, cells are not separate legal entities (except in ICCs), while in series LLCs, each series is treated as a separate entity for liability and management purposes.
• Domicile variability: the enforceability of statutory segregation and the regulatory treatment of series can differ significantly by domicile, especially in the US where series LLC law is still evolving.
• Tax treatment: the tax status of individual cells or series might be uncertain in some jurisdictions, potentially complicating compliance and reporting.

Comparison with other captive structures:

Group captives:

• Owned by multiple unrelated companies, typically from the same industry or with similar risk profiles.
• Risks, profits and losses are pooled and shared among members.
• Governance is shared, with each member having a vote in operations and strategy.
• Designed for small to mid-market operations with premium spend typically between $250,000 and $1,000,000.

PCCs/series captives vs. group captives: with single-parent captive

• Risk segregation: PCCs and series captives offer complete segregation of risk, while group captives pool risk, exposing members to the performance of the group.
• Customisation: cells/series can tailor coverage and risk management to individual needs, whereas group captives are often considerably less flexible, requiring member consensus.
• Entry/exit: joining or leaving a cell/series is typically easier and less disruptive than entering or exiting a group captive, which might involve complex buy-in/buy-out provisions. Domicile dormancy laws expand upon the flexibility provided by PCCs/series, further distancing themselves from group structures.
• Cost: PCCs and series captives might have higher administrative costs for a single insured than group captives. As the administration costs for group captives are spread amongst all the captive members, group captives might be a more viable solution for smaller organisations that are interested in participating in primary lines of business.
• Capital: PCC and series captives often have similar capital requirements compared to group captives. Typical purchase price of a share of stock within a group captive is ≈$30,000 with PCC/series capital requirements commonly seen at ≈$25,000. 

Comparison with single-parent captives

• Single-parent captives: generally offer the highest level of control, customisation and profit retention for one company, but might require significant capital, dedicated management resources and direct regulatory compliance. This structure is often best suited for large organisations willing to commit more than $1,000,000 in premium.
• PCCs/series captives: typically require less capital and are easier to set up, making them accessible to smaller or mid-sized companies while generally providing less direct control, as participants operate under the core company or LLC’s oversight. Regulatory and administrative burdens are largely handled by the core entity, making participation relatively streamlined with scalability being much easier, as adding new cells or series is more straightforward. The following chart provides an easy framework for comparing the typical structures of the two captive types:

Benefits and downsides of PCCs and series captives

PCCs and series captives offer several notable benefits. They have lower capital requirements and utilise shared infrastructure, making participation accessible to a broader range of organisations. Statutory segregation ensures that each participant’s risks and liabilities are isolated from those of others. These structures also provide operational flexibility, as cells or series can be easily launched, modified, or dissolved to support dynamic risk management. Centralised management streamlines administration and regulatory compliance, resulting in operational efficiencies and reduced costs. Additionally, each cell or series can create customised insurance solutions tailored to its specific needs.

However, there are potential downsides to consider. Participants generally have less direct control than owners of single-parent captives, as key decisions are made by the core company or LLC. Regulatory complexity can also be a challenge, particularly when navigating domicile-specific laws and ensuring compliance across multiple jurisdictions.

There is often uncertainty regarding the tax treatment of individual cells or series in some regions, which can create compliance risks. If the core company or LLC is owned by a captive manager or a third party, conflicts of interest might arise. Finally, some stakeholders might perceive participation in a cell or series as less independent or prestigious compared to owning a standalone captive insurance company.

Conflicts of interest: when the captive manager owns the structure

A significant concern in PCCs and series captives is the potential for conflicts of interest when the structure is owned or controlled by the captive manager or a third-party sponsor.

How conflicts arise

Profit motive: the manager might prioritise its own profit over the interests of cell/series participants, especially in pricing, claims handling or investment decisions.

Service bundling: managers often provide multiple services (management, brokerage, reinsurance, investment management), which can create competing incentives and reduce transparency.

Limited participant control: participants might have little say in governance, leading to decisions that benefit the manager at their expense.

Mitigating conflicts

Conflicts of interest are a significant concern in protected cell companies (PCCs) and series captives, especially when a captive manager or third-party sponsor has ownership or control over the structure. These situations can lead to decisions that might not align with the best interests of all participants. To address this, it is essential for managers to practice full transparency – clearly disclosing any potential conflicts of interest and obtaining informed consent from all participants.

Robust checks and balances further protect participants. This includes not only independent oversight – such as appointing impartial directors or external advisers – but also establishing clear governance frameworks and conducting regular audits. These measures help ensure that key decisions are made fairly and that the interests of each cell or series are safeguarded. Such structures are designed to prevent management from favouring their own interests over those of the broader participant group.

Regulatory authorities often recognise these risks, and many require specific governance provisions or restrictions on ownership to help minimise the potential for conflicts of interest. For example, independent directors might be mandated, or certain ownership models limited, to prevent undue influence by any single party. Implementing independent oversight is particularly valuable because these individuals or advisers bring objectivity, experience and additional expertise that captive managers or sponsors might lack internally.

Overall, prioritising strong oversight, transparency and well-defined governance not only helps participants feel confident that their interests are being protected, but also demonstrates a commitment to regulatory compliance, ethical management and responsible risk management. This approach bolsters accountability and credibility, supporting both the long-term success of the captive structure and the reputations of all parties involved.

Common misconceptions and misunderstandings

Misconception 1: “cells/series are not true captives”

Some believe only single-parent or group captives are “real” captives, while cells/series are somehow lesser. In reality, PCCs and series captives are fully regulated insurance vehicles, offering many of the same benefits as traditional captives, with added flexibility and efficiency.

Misconception 2: “there’s no risk of cross-contamination”

While statutory segregation is robust, the effectiveness of the “firewall” between cells/series depends on domicile law and the quality of legal documentation. In some jurisdictions, the legal separation has not been fully tested in court and operational errors can still lead to disputes.

Misconception 3: “cell/series participation is only for small companies”

While PCCs and series captives are accessible to smaller organisations, large corporations also use them for specific lines of business, emerging risks or as incubators for new captive programmes.

Misconception 4: “all domiciles offer the same protections”

The statutory and regulatory frameworks for PCCs and series captives vary widely. Some domiciles offer stronger legal protections, more flexible capital requirements or more favorable tax treatment. Domicile selection is critical to ensuring the intended benefits are realised.

Conclusion

Protected cell and series captive structures have transformed the captive insurance market, offering organisations of all sizes a flexible, efficient, and accessible means of managing risk. However, the choice of structure – and domicile – matters profoundly. Differences in legal frameworks, regulatory oversight and operational flexibility can have significant implications for risk isolation, cost and control. When compared to group and single-parent captives, PCCs and series captives offer unique advantages but also present distinct challenges, particularly around governance and potential conflicts of interest.

As the market continues to evolve, organisations must approach captive formation with a clear understanding of these structures, a careful assessment of domicile options and a commitment to transparency and best practices. Only then can they fully realise the benefits of these innovative risk management tools in today’s complex and dynamic environment.

Nate Reznicek is president and principal consultant at Captives.Insure. He can be contacted at: nate@captives.insure

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