Increasing wildfire insurance challenges and a hardening property market prompted the Sacramento Municipal Utility District (SMUD) to consider a more ambitious cell captive programme, and utilised Marsh’s ReadyCell platform to get up and running in time for renewal.
Speaking on the Global Captive Podcast Anna Marie Will, insurance program manager for SMUD, and Allan Smith, client service leader at Marsh Marsh Captive Solutions, discussed the challenges faced by the public entity in the commercial market and explained why a new cell captive turned out to be an effective solutions.
SMUD, serving Sacramento, California, is an electric generator utilising various sources of generation including hydro, solar, thermal and wind serving a population of around 1.5 million people.
The organisation had previously utilised a cell in South Carolina purely to access the reinsurance market, but when wildfire premium multiplied 10 times in five years, and with a hardening property market with increasing retentions also biting, a new captive strategy needed to be considered.
“The cell that we were using was very helpful just to access the reinsurance coverage,” Will said.
“But we found what we needed was more consultative assistance in terms of how we could more strategically use that cell; other things that we might do besides the coverages that we were unable to purchase, and Marsh offered that for us.”
SMUD worked with Marsh to form a cell within the captive manager’s Mangrove Protected Cell Facility in Washington DC and because of a pressing time requirement, utilised its ReadyCell platform to get up and running quickly.
“SMUD was coming up to a wildfire risk challenge … and our broker at Guy Carpenter needed to get the underwriting submission out into the reinsurance marketplace quickly,” Smith explained.
“As part of that, we need to demonstrate that there was an ongoing captive that they were going to be utilizing that was licensed.
“The ReadyCell allowed us to do that very, very quickly. We were able to turn this around in hours.”
Will said the primary motivation for building a more ambitious captive programme was “budgetary”.
“We’re a public agency, so if costs increase those get passed through to our customers,” she added.
“We really are focused on how do we keep our rates stable and our increases below inflation and so one of the things we’ve been looking at, as I mentioned, was alternative financing structures.
“The captive was really appealing in that it allowed us to self-fund some of these exposures as well as invest the money and earn interest on it.
“To us it was like investing in ourselves and that was a key motivator for our team. Additionally, the idea was there were other things that we could do with this captive besides just supplement our existing coverages.”
Listen to the full Global Captive Podcast interview with SMUD’s Anna Marie Will and Allan Smith, of Marsh Captive Solutions, here, or on any podcast platform. Just search for ‘Global Captive Podcast’.