Regulation and Risk: who carries accountability in a Cell Captive?

Cell captives operate under the oversight of the Financial Sector Conduct Authority and the Prudential Authority.

Although cell owners participate in underwriting, the licensed insurer remains legally accountable for regulatory compliance.

Real-World Regulatory Context

The FSCA’s Conduct Standard for third-party cell captive insurance business significantly tightened governance expectations. Following industry growth and complexity, regulators required enhanced transparency around profit-sharing, conflicts of interest and policyholder treatment.

Major cell providers such as Centriq Insurance Company have strengthened governance frameworks to align with these conduct standards, ensuring clear delineation between commercial incentives and fair customer outcomes.

Risk Allocation

Cell Owner Risks:

• Underwriting volatility
• Capital erosion
• Reputational risk
• Governance obligations

Insurer Risks:

• Regulatory sanction
• Conduct failures within cells
• Aggregated portfolio exposure

The insurer cannot outsource accountability. Even if operational functions are delegated, regulatory responsibility remains with the licensed entity.

Opening a Cell Captive: What Prospective Owners Must Know

Launching a cell captive requires rigorous preparation.

Step 1: Feasibility Study

A robust actuarial assessment must evaluate:

• Claims volatility
• Pricing sufficiency
• Capital requirements
• Five-year profitability modelling

Real-World Example: Fintech Insurance Entry

Several South African fintech and digital distribution businesses have entered the insurance space via cell captives rather than applying for full insurance licences. By partnering with insurers such as Guardrisk or Hollard Insurance Company, they gained speed to market while managing capital exposure.

This route significantly reduces regulatory barriers but does not eliminate governance responsibilities.

Step 2: Partner Selection

Evaluate:

• Capital strength
• Reinsurance access
• Compliance culture
• Technology integration capability
• Fee structures

Step 3: Structuring

Negotiate:

• Dividend policy
• Exit terms
• Underwriting authority
• Capital call mechanisms

Cell captives are strategic, long-term vehicles - not opportunistic profit plays.

In Part 5, we compare cell captives with UMAs.

*Kwanele Sibanda is the Founder and Editor of Insurance Biz Africa.