As more midsize organizations discover the benefits of the captive market, and as tax incentives in off-shore captive domiciles diminish, on-shore segregated account captives are becoming a popular alternative to off-shore cell captives and rental facilities.

Legislation authorizes the creation of separate cells and the firewall between them, which protects one cell from the liabilities of the other cells within the captive.

Segregated account captives have grown in popularity in recent years, as they provide an economical alternative to pure captives. As a prepackaged facility, the segregated account captive comes with its directors, officers and service providers already in place.

Captive domiciles that currently allow for protected cell captives include Arizona, Delaware, Montana, Nevada, South Carolina, Vermont and Washington, D.C.

The assets of a segregated account captive are either general assets or segregated account assets.

As the name suggests, segregated account assets represent the assets of a particular cell. The general assets of a segregated account captive are all of the assets that are not segregated account assets.

Each cell must be accounted for separately on the books and records of the captive to reflect the financial condition and results of operations of the cell.

However, it is not enough that the assets of a particular cell be separately identified in the books and records of the captive. The assets of a cell must be held separately from the assets of all other cells.

In other words, the captive is prohibited from commingling the assets of its various cells. This means, for example, that each cell must have its own bank account.

Each contract or agreement that relates to the business of a segregated account must be executed in a way that specifically indicates that the contract is on behalf of, or for the benefit of the segregated account.

Failure to execute a contract in this manner, in fact, could result in third parties being unaware that they are dealing with a segregated account.

In some domiciles, this could expose the directors of the segregated account captive to personal liability for the liabilities of the segregated account under the contract.

Additional regulatory limitations are intended to protect the integrity of the cell structure.

Special Reports /

On-Shore 'Segregated Account' Captives Gaining Popularity Among Risk Managers

Related Stories

Recommended For You