В Вермонте клетки страхования всё чаще регулируют как полноценные каперы

Christine Brown, deputy commissioner of captive insurance at the Vermont Department of Financial Regulation, speaks with John Savage about where a cell ends and a captive begins, as Vermont's cell regime increasingly mirrors the standard for standalone captives. The protected cell began as a straightforward entry point into captive ownership, the so-called 'rent-a-cell'. How has the way participants use cells changed over the past decade, and when did the structure start to behave less like rented space and more like a captive in its own right? Christine Brown: It is really interesting: when the cell legislation first came into play, it was very narrowly defined, primarily for financial institutions. The intent was for cells to not be risk bearing at all. It was a pass-through, either to access reinsurance or as a fronted, fully collateralised situation with no risk retained in the cell. Since then, obviously, things have changed quite substantially. We started to see change after we passed the incorporated protected cell legislation in 2011. We were one of the first jurisdictions in the US to bring in the incorporated protected cell language, which allowed owners to form cells that were their own legal entity, rather than just a cell by contract, which is what the protected cell is. An incorporated protected cell can enter into contracts on its own and have its own governance, which gives participants more agency over what is happening in the cell. Over the last five or so years, we have seen cells operating more like a traditional captive, whether a pure or group captive, and retaining risk. We have also modernised the types of entity an incorporated protected cell can be. The name is a little misleading: it does not have to be a corporation. It can be any legal entity allowed under Vermont statute, so limited liability companies (LLCs) and reciprocals were all added later. Every time we broaden who can use these cells, we see different kinds of use, and different participants getting interested in forming. Vermont's statute now provides for conversion in both directions: a protected cell into a standalone captive and, more recently, a standalone captive into a cell. What is driving demand for that movement, and what does the ability to travel either way tell us about how owners now think about where they sit between the two? Brown: It was in the early 2020s when we revamped the conversion language to allow easier movement between types of captive and cell arrangement, and interestingly, we have seen it go both ways. We expected to see more cells converting into pure captives, but we have also seen the opposite, where pure captives convert into a sponsored captive structure. What is really driving this trend is the flexibility a sponsored captive allows, with the ability to segregate risks. For example, a captive owner involved in a joint venture might want to segregate that risk, or, following merger and acquisition activity, keep the book of business they acquired separate from the rest. Sometimes entities want different types of risk in different cells, employee benefits or parametric-type covers, for example. We have also seen owners place controlled, unaffiliated third-party risk into a cell, segregated from their own, while offering coverage to business partners with whom they have some control over risk management and an existing contractual relationship. Going the other way, from the cell to a pure captive, is what we expected, where an entity simply outgrows the cell structure. The cell was used to dip their toes in the water, like an incubator, and then grow up into a standalone captive. When an established captive moves back into a cell, by contrast, it is usually the owner becoming the sponsor of the facility themselves, rather than moving into one run by a service provider, so they can offer cells to their contracted partners or segregate their own risks. That is generally what we see in Vermont. Cells have always felt to me like a gateway: you set one up, outgrow it, and move to a pure captive. Going the other way, I had assumed that would be a soft-market decision, an owner deciding they no longer need the pure captive. Is that what is driving the reverse conversions, or something else? Brown: We have not really seen the scale back, because you can do that with a pure captive anyway. In a soft market, entities will often reduce limits or put a line back in the commercial market and not use the captive for it, then come back to it later when conditions change again. What we are seeing instead is innovative use. Typically the owner of the pure captive forms a new sponsored captive and the pure captive converts into a cell: it stays intact, converts, and it is a continuation of that business plan. This structure allows them to form other cells to segregate their own risk or offer cells to business partners. From the regulator's chair, what signals that a cell participant has outgrown the structure and is ready to stand alone as its own captive? What do you look for before approving that step? Brown: To be honest, sometimes we receive an application for a cell and wonder why the participant is not simply forming their own captive. What we look for is sophistication: the ability to govern properly, to have your own board, and to understand the insurance risks. Many incorporated protected cells, now the most popular type of cell formation, have their own governance and can contract on their own, so they really do look like a pure captive. Protected cells are still used, but the growth is in the incorporated protected cell space. Another main consideration is funding, making sure the entity has the financial wherewithal to support the cell. It is a misconception that cells do not require the same level of funding as other types of captives. That may be true in limited circumstances, but we generally look at these programmes just as we would any other. The absence of a minimum capital requirement does not mean we would not apply the same standards. Required funding is commensurate with the retained risk. Does that conversation come from you, prompted by your reviews, or do you wait for the owner to raise it? And where is the line for a regulator between asking those questions and straying into advice? Brown: This is an interesting question, because there is a fine line between regulating and advising, and we cannot step into that consulting role. When we see a programme, we will ask the questions, and often the response is that it is an easier entry point, and they are more comfortable with a cell structure than forming their own insurance subsidiary. So we ask the questions, but we try not to advise. We just need to get an understanding for the rationale behind their decision and make sure it complies with our statutes. Even where we see a cell growing into a programme better suited to a standalone captive, we are not regulating differently. It comes down to preference. If we have serious questions about the reasoning, and really do not think it makes sense, we would typically reach out to the adviser to have that conversation, because we do not want to step on their toes, and there may be good reasons. It is a balancing act, but we try to be partners. If we think something is a bad idea, we will say so. If it is more a matter of preference, we stay neutral. From 1 July 2026, every new protected cell must certify under oath, within 30 days of commencing business, that the required funding was in place before it began operating. What prompted that change, and what does the certification achieve that existing oversight did not? Brown: We always try to balance the information we are collecting, and why it matters, against how much effort compliance takes for the industry. What really prompted this is what we have been talking about, that we are seeing more and more cells being formed that operate very much like pure or group captives, and in those cases, we try to apply a lot of the same standards. For example, if an entity was forming a sponsored captive that operated like an agency captive, we would turn to our agency laws and apply those same rules, even though it was not an agency captive per se. So we were aligning our oversight for cells with what we already do for other types of captive. It is not a reaction to a problem; we are merely trying to be proactive and consistent in our regulatory approach. That said, cells sometimes take longer to get off the ground. We have had instances where we would approve a new cell business plan and then find out months later that it had never formed, or that the business plan rolled out more slowly than projected. This is a way to keep track of what is happening in the cells, a growing segment of our business, and to be sure they are funded according to what we approved. The state's own framing is that this aligns cell requirements more closely with those applied to licensed captive insurers, reflecting their growing role in risk financing. Does that signal a broader direction of travel, in which cells are increasingly held to the same standard as standalone captives? Brown: Yes. Depending on the business plan and the type of business going in, we look at the other statutes to make sure that, where a cell is similar to another type of captive, we apply similar standards. What we want to avoid is somebody looking at the cell structure and thinking, 'Oh, these are less regulated, they do not require as much funding, we will just put our risk here', because that is not the intent of the law and not how we regulate. The law was designed for ease of entry, not as arbitrage between one type of captive and a less regulated structure. The core protection of any cell structure is that one cell's liabilities cannot reach another's assets. In practice, what does the division do to ensure that segregation holds, particularly as facilities grow larger and the cells within them more varied? Brown: The incorporated protected cells strengthen those walls further, and we are very comfortable that our protected cell statutes wall the risk off. These provisions have been tested in court, and the protection is written clearly into statute. It is really important that the participation agreement clearly sets out that segregation. The agreements for all participants should clearly reference the law and the segregation of the assets and liabilities, and be fully executed by the parties. We also think it is important for those contracts and other corporate documents to reference Vermont law specifically, because our statutes very clearly segregate the risk. If the corporate documents reference laws from other jurisdictions that might not have the same strong language, there could be issues. Those are a couple of the things we think about and advise in order to keep that segregation in place. Does that segregation ever come into question in practice, and how do you guard against it being drafted poorly, particularly with newer captive managers entering the market? Brown: I have not seen the segregation come into question. Another thing we encourage is the use of local counsel, because they really are experts in our law and in drafting these agreements so that they withstand scrutiny on segregation. We have a handful of firms here that know the law and know how to write these contracts so that a cell is properly walled off. Cells lower the barrier to captive participation, which widens access but also brings in owners with less experience of carrying risk. How does Vermont balance keeping that door open with maintaining the standard of supervision it is known for? Brown: We have a standard application form which looks very similar to our application for licensure, and it asks all the same kinds of questions with similar documentation required. We also review prospective participants and their financial statements, because we want to be sure they have the financial wherewithal to support the cell, even in an adverse case. We require financial projections supported by actuarial work on both an expected and an adverse basis, and they go through the same scrutiny. Even where a participant is a smaller entity, we look at the risks they are putting into the cell and make sure it is funded appropriately from the outset to withstand an adverse scenario if one is triggered. We are looking at the same things, even though these owners may be less sophisticated and smaller from a balance sheet perspective. Taken together, these changes describe a structure that has matured from a simple point of entry into something the division now regulates much like a captive in its own right. Does that reflect a deliberate philosophy, that a cell should be supervised in proportion to the risk it carries rather than its size or label, and what does that mean for the next generation of cell structures? Brown: Proportionality is our philosophy in Vermont. We take a risk-focused approach. The type of entity matters from a legal structure perspective, as do the statutes associated with it, but from a financial solvency perspective we look at structures according to the retained risk within the entity itself. That philosophy has not really changed with increased usage of cells. We have always been risk-focused, and look at things proportionally, so we are not over-regulating a company that does not carry much risk, and can devote more resources to companies that have a higher risk profile. The structure matters less than the risk going into it. We require cells to file annual reports just as any other captive does, and they are subject to our annual analysis procedures and examinations, so we are always watching to make sure things are not moving in the wrong direction, to protect the owners and insureds, and our own reputation.