Tuesday, May 21, 2024

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Domicile Wars: “Quality over quantity” for Vermont, recruitment continues for captive expertise


  • Twenty-two new captives formed in the first half of 2023
  • Captive owners praise “great vibe” of regulatory environment and collaboration
  • Experience and established rules, regulations provide stable environment
  • Increased US domicile competition hasn’t dampened Vermont activity

Vermont is not resting on its laurels having recently taken top spot for number of active captives, with a focus on “quality over quantity” and a continued recruitment drive both within the regulator and across the local industry.

According to Captive Intelligence’s data on the number of captives in each major domicile, at the end of 2022 Vermont had reached number one with 639 active captives at year-end.

Forty-one new captives were established in the State during 2022 and the last three years have been amongst Vermont’s top 10 years of growth in its 41-year history in the industry.

Sandy Bigglestone, deputy commissioner for the captive insurance division at the Vermont Department of Financial Regulation, told Captive Intelligence that as the domicile continues to grow, a “huge goal” is to make sure Vermont’s captive division is equipped to meet the workload.



“Obviously, we’ve been growing and adding companies and the last thing I want to do is put more pressure on our staff to do more than what they can possibly do in a given day,” she said.

“So, it’s important to keep growing and then grow the staff to keep up with it.”

Ian Davis, senior vice president, captive insurance at M&T Bank and previously business development leader for the State’s captive market from 2017 to 2020, said he believes Vermont has stayed true to itself “in that it’s always been about quality over quantity”.

“The goal was never to become the largest domicile in the world overnight; the visionaries involved in crafting the enabling legislation wanted to create an environment that allowed for growth, a place where companies could be proud to domicile their captives, and behold here we are today,” he told Captive Intelligence.

Vermont has had a strong first half of 2023, licencing 22 new captives and taking its current total to 654. Traditionally, the last quarter of the year is when most captive formations take place in US domiciles.

Of those 22 new captives, three had parents based outside of the US; from the United Kingdom, Canada and South America.

Assets under management in Vermont captives stands at $212bn and they wrote $42bn in gross premium in 2022.

Jim DeVoe-Talluto, assistant director of captive insurance at Vermont’s Department of Financial Regulation said in a Global Captive Podcast interview at the VCIA conference last week that he anticipates cell growth will remain strong “as the cell facilities can offer tailored programmes with lower barriers to entry”.

“A great vibe”

One of the new 41 new formations in 2022 was Member Owned Topco Insurance Solutions (MOTIS), a sponsored captive owned by Topco Associates LLC, America’s largest retail food group purchasing organisation (GPO), established in November.

Speaking at the VCIA conference for a Global Captive Podcast episode to be released in the coming weeks, Adam Binder, category director for indirect spend program at Topco, said they did thorough due diligence of six domiciles and were looking at a range of factors such as fees, premium taxes, capitalisation requirements.

“But for us, it really came down to a cultural fit with the regulatory team that we wanted to partner with,” Binder said.

“We had conversations with a couple domiciles. In Vermont there was just a great vibe. They have a great team, they’ve been around since the early 1980s. There are 30 people on staff, and it was just so engaging. The energy was great, they seemed flexible, they were bright, creative, and within 10 minutes we knew they were the right domicile for us.”

Adam Miholic, senior consultant at Hylant Global Captive Solutions, who is working with Topco on their newly formed captive and building it out further, said the fact MOTIS is a cell captive planning to write various lines of business, Vermont was a good fit because of its experience across a range of insurance programmes.

“We obviously went through the quantitative analysis, but when we looked at the qualitative side, one of the things I kept coming back to is there’s very little that Vermont hasn’t seen,” he said.

“So you’re unlikely going to have a member come to you and say, ‘can I do X?’ And we’ll have to pump the brakes and say I don’t know if Vermont is going to be comfortable with this.

“They’re always open for the conversation, they’re always willing to sit down and maybe try something innovative, but at face value there’s very little they haven’t seen. And that led to the flexibility and the customization that I think Topco was really looking for.”

Professional services firm CBIZ formed Rockside Insurance Company in Vermont in March and Kristen Peed, director of corporate risk management at CBIZ, said the experience of the regulators and local service providers was a big plus.

“You can tell that the calibre of service providers in Vermont is really high because they know what they’re doing and I think it makes something that could be frustrating, more enjoyable,” Peed said on the Global Captive Podcast earlier this year.

Manufacturing giant John Deere has owned a captive in Vermont since 2004, with John Deere Indemnity originally set up in 2004 to support the group’s extended warranty business. While its extended warranty volume continues to grow, the corporate also utilises the captive for an increasing number of coverages for the group.

Aileen Krehbiel, manager of captive insurance programs at John Deere, said it has been “invaluable” to have Vermont as its captive domicile.

“The regulators have been extremely responsive to business plan changes, dividend requests, response times in the 24 to 48 hour range are not uncommon,” she explained on the Global Captive Podcast.

“We also meet with the regulators prior to our board meeting, which we have on an annual basis here in Vermont.

“They’re very open to understanding what we have going in our business, what upcoming changes we expect. And then the service providers that we’ve worked  with in Vermont have been extremely knowledgeable and great to work with.”

Hard market

The hard market, particularly tighter coverage terms and conditions as well as dwindling (re)insurance capacity, has provided a boost to the captive market with DeVoe-Talluto noting that it remains a “significant driver” of new captive formations.

Inflation, the volatile economic landscape and Covid, however, have also been factors with businesses having to think more strategically about their insurance spend and risk financing strategy.

“They have been faced with huge increases for their insurance needs, and it makes the prospect of setting up a captive look very attractive,” Bigglestone said.

Bigglestone said she is seeing a lot of cyber risk and D&O being put into captives, “while property is a big driver of growth”.

“We’re also seeing companies financing their deductible for general liability, workers comp and professional liability,” she added.

“It’s also a really tough market right now for medical malpractice and captives are playing an important role in helping manage the challenges.”

Brittany Nevins, captive insurance economic development director at the State of Vermont, told Captive Intelligence she’s had conversations with a number of companies in climate affected areas, such as Florida, who are wanting to put property risk in a captive.

There is a lot of interest from businesses in the legalised cannabis sector, but Vermont remains cautious until, if and when, the drug is declassified at the federal level.

“We’re still holding off on that with the federal regulation, but I do think that’ll come soon enough,” Nevins added.

She also believes that there’s generally more knowledge of the captive industry, which keep new captive numbers high even as the market softens.

“There’s more awareness of captive insurance increasingly, so it seems like companies are realising that there are more and more benefits than just the cost,” Nevins said.

“It seems like it’s much more than just a reaction to the traditional market at this point.”

Established, consistent presence

One of the main attractions of Vermont as a captive domicile is its robust and long-standing rules and regulations.

“Captive insurance is truly a global industry and the fact that a small state like Vermont can be home to so many global multinationals who have the ability to domicile wherever they’d like, but they’re electing to come to Vermont because they want to be well regulated and be where their peers are,” Davis said.

“It speaks to the strength of our regulatory team and the industry that exists here.”
Bigglestone said companies do not want to come to a jurisdiction that does not have a good set of rules, standards and expectations.

“They want to know we’re accountable, and they are accountable in return,” she said.

The State also updates its captive legislation annually to meet the evolving needs of local industry.

VICA puts forward a captive bill every year in the State’s legislature with input from members and Vermont regulators.

“The process is a proactive process, which is really unique. Every year the question is asked, ‘how can we be better?’” Nevins said.

“No update to our statue is too small, our lawmakers want to support captive insurance companies, and that’s a really big benefit to companies that license here.

“In a state like Vermont, this industry has a huge impact on our economy, so constant improvement is foundational to our domicile.”

The latest legislation passed this May made general housekeeping updates to improve efficiency and clarify our laws. 

“This past year we also improved our confidentiality requirements,” Nevins said. “So, that’s going to be really good for the businesses that we licence just to make sure that we’re taking that extra step to protect their information.”

Challenges

Increased domicile competition had emerged over the last 10 years, since passage of the Nonadmitted and Reinsurance Reform Act of 2010, part of the broader Dodd-Frank Wall Street Reform and Consumer Protection Act, which ultimately provided an opportunity for other states to chase self-procurement tax dollars and promote their own “home-state” captive regimes.

While some captives have re-domesticated to their home states over the past decade – Texas, North Carolina and Connecticut as three examples – the hard market and high volume of new formations over the past five years has re-emphasised Vermont’s reputation as a good and viable option for new captive owners.

Davis noted that the proliferation of other state domiciles seeking to replicate the success of Vermont has presented challenges, but it has also posed new opportunities for the State.

“On the one hand it’s been good for the industry in that it’s promoted the use of captive insurance, and it has helped spread the word about the industry,” he said.

Vermont also continues to be the beneficiary of inward captive moves. British multinational electricity and gas utility company National Grid Plc was the latest to move its New York-domiciled captive to the Green Mountain State in May this year.

Another challenge for Vermont and the wider captive industry is the replenishment of talent and attracting fresh blood into the industry.

Bigglestone is confident that Vermont Captive Insurance Emerging Leaders (VCIEL) group, supported by VCIA and the Economic Development Department will have a substantial impact on bringing this new talent into the industry.

“Or at least raising awareness that there’s this great industry with so many career avenues to choose from,” she added.