What Is a Protected Cell Company (PCC)?

A protected cell company (PCC) is a corporate structure in which a single legal entity consists of a core linked to several cells that have separate assets and liabilities. A PCC has a similar design to a hub and spoke. The central core organization is linked to individual cells and each cell is independent of each other and the company’s core, but the entire unit is still a single legal entity. A PPC is sometimes referred to as a segregated portfolio company.

Key Takeaways

  • A protected cell company (PCC) is a legal entity that consists of a core linked to several cells.
  • Cells in a PCC have separate assets and liabilities and are independent of one another.
  • A PCC is governed by a single board of directors that oversees the entire legal entity. Each cell is managed by a committee or group authorized by the board.
  • Only a single annual return needs to be filed for a PCC, encompassing the core and the cells.
  • For bankruptcy purposes, the cells are treated as separate legal entities; creditors cannot go after the assets of other cells.

How a Protected Cell Company (PCC) Works

A protected cell company operates (PCC) with two distinct groups: a single-core company and an unlimited number of cells. It is governed by a single board of directors, which is responsible for the management of the PCC as a whole. Each cell is managed by a committee or similar group, with authority to the committee granted by the PCC board of directors. A PCC files a single annual return to regulators, though business and operational plans of each cell may still require individual review and approval by regulators.

Cells within a PCC are formed under the authority of the board of directors, who are typically able to create new cells as business needs arise. The articles of incorporation provide guidelines that the directors must follow.

Protected Cell Companies and Creditors

In some jurisdictions, where the assets of a segregated portfolio are inadequate to meet that portfolio's obligations, then a creditor may have recourse to the general assets of the PCC, but not to those assets that belong to a different segregated portfolio. A PCC is technically a single legal entity, and the segregated portfolios within the PCC are not separate legal entities, though, for bankruptcy purposes, they are treated as such.

Insurance and reinsurance companies use this form of organizational structure. Creditors may also have access to the core assets of the company. Each individual cell is often expected to keep collateralized underwriting risk on its own within the cell.

Financial institutions, such as banks, may create PCCs to create insurance products from banking products. In this way, it is creating a special purpose vehicle (SPV) to securitize a transaction.

In some jurisdictions, the separation of liabilities is achieved by different mechanisms. For example, Barbados allows the formation of both “Protected Cell Companies” and “Companies with a Separate Account Structure.” The latter separates liabilities by allowing a company to allocate assets and liabilities to any number of separate accounts.