The problem of becoming a licenced insurer
When businesses face unique or complex risks, or when the available risk transfer solutions in the open market don’t make sense, they often need a smarter insurance alternative.
Designed to facilitate self-insurance without the full overhead of owning or becoming an insurer, cell captive insurance unlocks greater control, cost efficiency and customisation. For companies insuring niche risks, or operating in sectors like mining and infrastructure, where conventional cover for relevant business risks isn’t feasible, cell captive insurance offers a proven, powerful solution.
In some jurisdictions, like South Africa and Mauritius, cell captive insurers can also underwrite the risks of third parties, like the cell captive owner’s customers or the general public. This structure gives cell owners the ability to participate more fully in risk and reward. It also enables them to embed cover into their existing offerings and design tailored, personalised cover for their customers without the regulatory capital, licensing timelines and compliance associated with becoming a fully licenced insurer.
How does a cell captive work?
A cell captive insurance structure allows a business (the cell owner) to operate an insurance business from within a licensed captive insurer (the cell captive insurer) without itself being a licenced insurer. A cell captive insurer’s primary purpose is to insure the risks of its cell owner/s. They are also subject to specific insurance licensing and prudential requirements.
Instead of obtaining a full insurance licence, a non-insurer enters into a formal arrangement with a cell captive insurer to establish a cell inside the insurer’s captive structure. This typically involves the non-insurer being issued a special class of shares, usually a form of preference shares, in exchange for providing funds to capitalise a ring-fenced “space” - a cell - in the cell insurer.
The cell owner is responsible for ensuring that the cell is sufficiently capitalised, and the cell’s assets and liabilities are kept separate from those of the cell captive insurer and from other cells.
Premiums are collected into the cell and claims are paid out of it. If a cell generates a profit, the cell owner would be entitled to receive dividends paid out of the distributable reserves attributable to the cell.
First-party / direct-writing
Cell captives are primarily used for first-party captive insurance (also known as direct-writing captive insurance in the UK), where a company wishes to insure its own operational risks or those of its group companies.
This is typically an attractive solution when a business wishes to insure niche operational risks but obtaining insurance from a traditional insurer is commercially unfeasible or not available. For example, a logistics company might enter into a direct-writing / first-party cell captive arrangement to insure a specialised vehicle fleet, or a mining company might cover risks to its specialised plant and equipment.
Third-party
In a few jurisdictions, notably South Africa, Mauritius and Namibia, third-party cell captive insurance structures are also recognised, which allow insurance to be offered to the cell owner’s customers or the general public. In all other important respects, the basic structure operates the same as for first-party / direct-writing captives.
Depending on the arrangement, the cell owner may also perform other functions like determining policy wording and premiums and entering into policies, but these involve additional licencing and regulatory requirements.
It is worth noting that the cell owner may still need a financial or intermediary services licence, depending on jurisdiction. While they may not be subject to the same prudential or licencing requirements as a traditional insurer, they are not entirely unregulated.
Why use a cell captive?
A cell captive insurance structure offers a practical way to provide niche, tailored cover - whether to cover a business’ own risks or the risks of its customers (in the case of third-party captives) - with a direct share in performance and without needing a full insurance license.
Lower barriers to entry
As a cell owner, it is not necessary to apply for and maintain your own insurance licence.
Speed to market
Establishing a cell is typically faster than obtaining your own insurance licence.
Profit-sharing
In the case of direct-writing / first-party cells, the value lies in operational and capital efficiencies. By insuring risks through a cell captive insurance arrangement, it may be possible to reduce premiums, retain surpluses within the group and access reinsurance more efficiently.
In jurisdictions like South Africa, where commissions and fees are capped by regulation, third-party cell ownership allows intermediaries to participate further in the insurance value chain and share directly in the underwriting profit.
Opportunity for growth
In jurisdictions where third party cells are accommodated, cell ownership can also be a stepping stone to operating as a licenced insurer. Businesses could use a cell captive structure to build a track record, and eventually transition to obtaining their own insurance licence once they have the experience, scale and capital to support it.
Capitec Bank, South Africa’s largest bank by market capitalisation as of 2025, recently took this step. Capitec historically provided a credit life insurance product through a third-party cell captive insurance arrangement with Guardrisk Life. This allowed them an entry point into the insurance market, and as their insurance business scaled, the cell captive structure provided the track record, operational experience and product and market validation. Capitec obtained a life insurance licence in 2023 and now issues credit life policies under its own licence as Capitec Life.
Case studies from jurisdictions
South Africa
Cell captive arrangements are recognised and enforced through licence conditions specific to cell captive insurers, as well as broader prudential and market conduct requirements under the Insurance Act. Additional guidance is provided through guidelines and regulations from the FSCA and the Prudential Authority, specifically relating to cell captive insurance arrangements.
South African insurers and their cells also operate under the Solvency Assessment and Management (SAM) framework, which governs capital, solvency, and liquidity requirements and aligns closely with the Solvency II standards applicable in the EU and UK.
In South Africa, there’s no dedicated companies legislation to support cell captive structures and cell captive structures are created contractually through shareholder agreements between the licensed insurer and each cell owner. These agreements define the economic and operational relationship, including how risk and profits are allocated and how governance is managed. Although ring-fenced, the cells are not separate legal entities from the insurer.
Mauritius
In Mauritius, cell captive insurance is governed by the Financial Services Act and Insurance Act. Mauritius’ Protected Cell Company Act 1999 and Companies Act also provide for the formation of Protected Cell Companies (PCCs).
A PCC is a single legal entity that creates multiple statutorily segregated cells, each with its own ring-fenced assets and liabilities:
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While all cells exist within a single legal entity, the PCC Act establishes that each cell’s assets and liabilities are treated as distinct from those of other cells.
The Financial Services Commission requires PCCs conducting insurance business to meet specific reporting and solvency requirements, including:
- Separate liquidity and solvency certification
- Actuarial valuations for long-term business
- Detailed disclosures when new cells are created
PCCs are commonly used for traditional cell captive insurance, as well as “rent-a-captive” models, where unrelated businesses can effectively “lease” a cell rather than capitalising and owning it outright. Mauritius actively markets the regime to global businesses seeking a compliant, internationally recognised platform and its PCC structure may be familiar to captives operating in Guernsey or Jersey.
United Kingdom
The UK government has recently concluded a consultation process regarding the regulation of cell captive insurance, with a view to supporting the growth and international competitiveness of the UK’s insurance sector.
As noted in the consultation paper, the UK has historically not been perceived to be an attractive destination for establishing captive insurance companies because UK-resident captive insurers are subject to the same application, authorisation, governance, capital, compliance and reporting requirements as other insurers and reinsurers.
Whilst current UK regulation does permit the formation of captive insurers, most captives are established offshore rather than in the UK. Around 500 UK-associated captives are currently estimated to be located in offshore jurisdictions, like the Isle of Man, Guernsey and Bermuda.
The UK government also received representations that captives should be permitted to operate via PCC structures.
Third-party models, while not considered as part of the current proposals, may represent an interesting opportunity for UK non–insurance brands.
Modern insurance technology matters
In a cell captive insurance structure, like any insurance distribution value chain, multiple role-players interact: the cell owner, the cell insurer, reinsurers, third-party administrators and distributors.
Modern insurance technology that can connect the different participants is critical to facilitate an efficient value chain that delivers optimal outcomes for customers and policyholders. Without this infrastructure in place, inefficiencies are introduced, invariably leading to higher premiums and product development and iteration is restricted by operational and technological constraints.
A well-architected, core policy administration system with strong APIs allows each participant’s systems to integrate and “talk” to each other, enabling automation, real-time reporting, easier compliance, and smooth audit processes across the distributed value chain.
This also unlocks flexibility, and modern insurance software is table stakes for any business looking to leverage the latest technology to support growth, like integrating AI-based underwriting tools or adding new distribution partners without having to rewire the entire tech stack.
Final thoughts
At Root, we work with cell captive insurers, as well as retail and affinity brand cell owners to launch new products and grow their insurance businesses with confidence - from policy issuing and administration, billing and claims to compliance, reporting and complaints.
As further reading, see:
- How we’ve collaborated with leading cell captive insurer, Guardrisk
- Our reflections on the UK’s captive insurance consultation
- How retailers are embedding new revenue streams
Frequently Asked Questions
How long does it take to set up a cell?
It depends on the cell insurer and jurisdiction, but incepting a cell captive insurance arrangement is typically faster than becoming a licensed insurer.
What is a first-party, or direct-writing cell?
A cell captive insurance structure that allows a non insurer to self-insure, or provide cover for the risks of its group or parent companies.
What is a third-party cell?
A cell captive insurance structure that allows a non-insurer to provide insurance to cover the risks of its customers, affinity groups or the general public.
Can anyone set up a third-party cell?
No. Only a few jurisdictions allow for cell captives to be used to cover third-party insurance risk. Where permitted, it can be a powerful way for non-insurance businesses to offer tailored cover to customers while participating in a share of the performance of the insurance business.
How can modern insurance technology benefit cell captive insurers and owners?
Having a API-first, modern core insurance platform or policy administration system plays a critical role in helping cell insurers and cell owners launch digital insurance products quickly, streamline the flow of information and reporting when managing products and automate workflows between cell insurers and cell owners - from policy administration and claims to compliance and reporting. The right platform can make running a cell as efficient as possible, enabling insurers and cell owners to grow their insurance business at scale and with confidence.
