Cell captives provide valuable corporate governance tool - February 2004
With the accounting profession taking a closer look at all off balance sheet assets and liabilities, self insured risk financing programmes - like cell captives and contingency policies - may lose some of their financial lustre but the corporate governance advantages that such structures provide will far outweigh any perceived disadvantages. That's according to Lisa Buterin, executive director of Guardrisk, South Africa's leading specialist insurer.

When Guardrisk introduced the cell captive structure to the insurance world in 1993, corporates were offered a cost effective alternative to owning their own captive insurer. Effectively, they could now enjoy all the benefits of owning an insurance company without the inherent cost and administrative implications.

The cell captive structure rewards prudent risk management and, over the past decade, more and more corporates have opted for these types of programmes - experiencing first hand the very real benefits that are to be gained from introducing effective risk management. Now, in the wake of financial scandals like World.Com and Enron, self insured risk financing programmes are being brought into the accounting net and clients are being called on by their auditors to place these on balance sheet.

"This means that those clients who entered into risk financing arrangements solely to reap financial benefits may find themselves less satisfied with the new arrangements, but, for most clients, the very real risk management benefits will more than compensate," says Buterin. Within the cell captive environment companies have a transparent, independently managed risk management facility that enables them to identity, finance and manage the risks the company faces - including those that are generally considered to be uninsurable.

"King II identifies risk management as a key aspect of corporate governance and, regardless of changing accounting regulations, corporates will increasingly have to pay attention to this aspect of the business in future," says Buterin. Those companies that have a strong focus on corporate governance and that consider risk management and loss control to be a strategic driver of their business will find an indispensable tool in cell captives.