Cell captives provide valuable corporate governance tool

The corporate insurance market has changed dramatically over the past decade, with an increasing number of companies choosing to enter into self insured risk financing programmes - like cell captives and contingency policies.

"Initially, cell captive structures offered a financially viable alternative to traditional insurance programmes. But the increasing focus on corporate governance, and the important role that risk management plays in effective corporate governance, has made corporates look at cell captives in a whole new light. Increasingly, they now appreciate the corporate governance benefits to be gained from effective risk management, which is the cornerstone of the cell captive concept," says Herman Schoeman, MD of Guardrisk, South Africa's leading specialist insurer.

In the cell captive environment, premiums are allocated directly to individual cells and are used to pay claims, buy reinsurance for catastrophic events and make investments (the cell captive insurer charges an administration fee for these services). Each cell covers only its own risks - there is no cross subsidisation - and economic benefits belong to the individual cell. Thus prudent risk management bears direct rewards.

Cell captives effectively provide corporates with all the benefits of owning their own insurance company, without the inherent financial and administrative burden. The cell captive insurer provides underwriting, reinsurance, claims management, investment and accounting functions for clients (cell owners). This keeps costs down and gives clients access to a broad base of insurance skills.

"King II identifies risk management as a key aspect of corporate governance and 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," says Schoeman.

About Guardrisk
For the year ended 31 March 2005 the Guardrisk group's gross premium written increased by 16% to R2.513bn. The company pioneered the cell captive concept, introducing cell captives to the world's short-term insurance industry in 1993, and extended the structure to the life industry in 1999.

For further information please contact:
Herman Schoeman
Guardrisk
Telephone: +27 11 669-1002
Cell: +27 82 376 3821

Prepared by:
Melanie Davis
PR at Work CC
Telephone: +27 11 615-3309
Cell: +27 83 225 7450