Bermuda to Encourage Protected-Cell Captives.

Bermuda is expected to introduce legislation this summer to ease the formation of segregated portfolio captive insurance companies, attorney Michael Burns told delegates to ICAP 2000.

"The draft Segregated Accounts Act 2000 is on the desk of the minister of finance, for his approval. The political will is there," said Burns of the Bermuda law firm Appleby Spurling & Kempe. "Our legislation will refine the concept, improve it and enable us to run with a more cost-effective mechanism."

Action had been slowed, Burns said, by "the desire to extend the process beyond insurance to mutual funds for umbrella classes of shares, e-commerce, securitization, transformer companies, catastrophe bonds and life and annuity, which we see as another key end user." The Private Act of Parliament mechanism will stay in place for companies needing tailored solutions in forming the special captives, which keep the assets of multiple participants in protected "cells" within the insurer.

Thomas Jones, partner at the Chicago headquarters of law firm McDermott, Will & Emery, said the U.S. Internal Revenue Service hadn't ruled yet on segregated portfolio captives. He advised potential owners of such captives to ensure that governing law is clearly set in the jurisdiction in which the captive is formed. Jones forecast that the IRS would treat "cell-type companies as a single legal entity, with the presence of insurance risk-sharing required on a cell-by-cell basis. If no cells internally contain shared risks and there is no risk-sharing between cells, then each cell is an investment company."