Article

Transitioning from a segregated cell facility to a pure (single parent) captive insurance company can be accomplished efficiently by leveraging the process of transferring assets and liabilities. With evolving regulations in many captive domiciles, this pathway is becoming both common and streamlined, giving organizations clear advantages in control and structure. While a cell captive offers many of the same benefits of pure captives and a lower barrier to entry from both a premium and cost perspective, there can be motivations to move to a single parent / “pure” captive. This article will explore some of the differences and considerations to make between these captive structures.  

Understanding the Segregated Cell Foundation

Cell captives, whether incorporated or unincorporated, offer an accessible, lower-cost entry point into self-insurance. They function as legally distinct segments within a parent vehicle, insulating each cell’s risks and finances. This structure is especially attractive to organizations wanting cost-efficiency and speed to market.

Motivations to Transition

Business sophistication or capital growth often motivates companies to leave the cell model for a single parent captive. The move allows for:

• Selection of all service providers
• Re-domestication

Direct Asset and Liability Transfer: The Modern Approach

Instead of dissolving the cell and launching a new entity from scratch, an increasing number of captive domiciles permit a cell to be “spun out” or converted into a standalone captive by officially transferring all of its assets and liabilities. This conversion, when managed well, can cut down on redundancy, bureaucracy, and operational disruption.​

Essential Steps for Asset and Liability Transfer

1. Develop a Conversion and Transfer Plan

• Identify all assets, liabilities, and contracts to be moved.
• Draft a comprehensive transfer plan and pro forma financials.
• Include details of impacted policyholders and creditors.​

2. Secure Approvals

• Obtain necessary consents from the cell sponsor, cell participants, and relevant creditors according to the participation agreement and applicable statutes.​
• Present the transfer plan to regulators for prior approval.

3. Regulator Review and Consent

• Submit all documentation to the insurance commissioner, including solvency evidence and transfer mechanics.
• Regulator ensures statutory and financial standards are met for both the departing cell and the emerging captive.

4. Legal Execution of Transfers

• Following approval, formally assign assets, transfer liabilities, and novate or assign all policies, contracts, and reinsurance agreements as needed.
• Complete any filings required by the Secretary of State for changes in entity status.​

5. Finalize Standalone Captive Licensing

• Regulator issues a new or amended certificate of authority to the standalone captive.
• Books, records, and operational control shift to the new captive.
• Update third-party provider contracts and regulatory filings to reflect the new structure.

Regulatory Flexibility and Jurisdictional Trends

States such as Tennessee, Vermont, and Utah have either established or updated legislation supporting both the formation and conversion of cells to standalone captives. These statutes specify that assets, liabilities, and contractual obligations remain seamlessly with the transitioning entity. Some states even allow the conversion to retain the original formation date, which may offer operational and compliance benefits.

Timeline

A well-prepared transfer, with cooperation among sponsor, management, and regulators, can move from planning to execution in as little as 2 months. This route is often considerably faster than launching a brand new captive, which may require additional steps such as winding down the cell and transferring exposures piecemeal. The speed depends on factors such as regulatory workload, cell complexity, and thoroughness of documentation.​

Transferring assets and liabilities from a segregated cell to a pure captive is an increasingly accessible route for organizations seeking greater autonomy in their insurance programs. Modern statutes and regulator support allow for efficient, seamless transitions, helping businesses gain the full advantages of captive ownership with minimized operational interruption. Proper preparation, regulatory engagement, and professional guidance are essential for success at every step. Looking for further guidance on captive structures? Reach out to C.I. today.