Local ART industry must not be allowed to lose ground
- Herman Schoeman, MD of Guardrisk

South African regulators and the local market need to move quickly to ensure that the local ART industry - and specifically the cell captive market - does not lose ground as it falls behind international legislative trends.

Protected cell companies (PCCs) - introduced in Guernsey in 1997 - heralded the first steps in the evolution of the contractual cell captive structure. In a nutshell: PCC legislation enhances the ring-fencing of individual cells' assets, allowing each cell to operate as a distinct insurance entity. Many international jurisdictions that introduced PCC legislation over the past decade are now already moving forward, effectively into the next phase, with the creation of incorporated cell company (ICC) legislation. ICCs form incorporated cells, which are separate companies, each with their own legal identity. This further enhances the security of cells with absolute segregation of a cell owner's investments from other participants in the cell insurer.

South Africa played a pivotal role in the establishment and development of the cell captive industry in the early 1990s and the country has a well established, and distinguished, cell captive industry - a local cell captive insurer has been recorded as the world's largest specialist captive insurance group of its kind (in US$ terms) for the past two years. It would be a great pity if SA's cell captive market fell behind its international counterparts because it failed to evolve from a legislative point of view.

The stage is set for the Financial Services Board (FSB) to become more proactive in supporting the leading role that the South African market has played in the international cell captive arena. In fact, there is a great opportunity for the regulator to kill the proverbial two birds with one stone: moving legislation which governs cell captives to a more advanced level will not only promote the industry, but dovetails nicely with the government's drive towards enhanced consumer protection since the greatest growth in cell captives has come from the provision of specialist niche insurance products to cell owners' customers.

The FSB should not waste time; advancing legislation of cell captives is, by its very nature, an evolutionary process with the inherent time line. The market - and the regulator - will not be able to move from the current contractual basis of cell captives directly to the newly developed ICC legislation; we need to walk before we crawl, and the next step in the evolutionary chain is PCC legislation.

In fact, it may not be necessary for South Africa ever to move to ICC legislation - there has not been a single negative reported case of PCC legislation; and there is widespread recognition that every domicile must make its own decision on whether to adopt the PCC concept based on numerous fiscal, regulatory and practical factors.

What is clear is that it is time for the South African cell captive industry to move to the next legislative level; not because contractual cell captives in themselves are a problem, but because it makes good business sense, especially in a global market, to keep up with international trends.

South Africa not only stands to benefit from the experience of countries that adopted PCC legislation ten years ago, but there is a also a great deal of local experience that the FSB can draw on to assist them in drawing up this legislation. What's more, PCC legislation has in itself evolved over the past decade so the local regulator would have the benefit of access to a structure that has already been updated several times.

Within a PCC environment there will be significant opportunities to expand the use of the cell captive concept, specifically in the investment environment, which would be good for the local industry. In addition to enhanced security, the introduction of PCCs will further clarify the application of the segregated cell concept in both the legal and accounting environments.

Its not going to be an easy road; it will take a great deal of will on the part of the regulator, and will need to be supported by the co-operation of various role players because the new legislation will impact on other financial regulations (like insolvency legislation), which is regulated by other departments. But it will be a journey well worth taking in that PCCs can be used in a variety of new and flexible ways, something that will be good for both the industry and the country.


For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450