Sunday, April 21, 2024

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Marsh launches Delaware cell facility, specifically for D&O

Marsh Captive Solutions has established a cell captive facility in Delaware, specifically designed to serve clients seeking alternative risk transfer options for Side A directors and officers (D&O) insurance.

Marsh has been a leading voice on captive options for Side A since the D&O market hardened significantly four years ago, with clients utilising cells, often in Bermuda, as they sought alternatives to the commercial market.

The Global Captive Podcast discussed this strategy at the height of the D&O market crisis with Marsh’s Lorraine Stack and Beth Thurston in November 2020.

In February 2022, Delaware’s corporate code was amended to expressly permit the use of captives to self-insure most Side A exposures of businesses that are headquartered in the State.

Captive Intelligence revealed in December that social media giant Meta had transformed its Hawaii-domiciled pure captive into a sponsored captive with a cell being used to self-fund Side A D&O, taking advantage of the Delaware legislative change.

We understand at least one other Hawaii captive, owned by a Delaware corporate, has since replicated that structure.

Despite Marsh already having cell companies in Washington DC, Vermont, Bermuda, Malta and Guernsey, Donna Weber, senior vice president and pooling & cell facilities leader, told Captive Intelligence they specifically wanted a Delaware facility for Side A D&O risks.

“The approved Delaware law is a significant step forward as it allows more companies to consider a wholly owned captive or a “cell” as a partial or complete solution for covering Side A D&O claims,” Weber said.

“We feel that the combination of the new Delaware law, combined with utilisation of a cell facility domiciled in Delaware, provides the closest alternative to commercial insurance with least amount of potential issues.

“As one example, since both the corporate law and the captive law are both Delaware, potential public policy conflicts that may arise if the captive is domiciled outside of DE are removed.”

Weber said that the Side A cell option would be of particular interest to companies facing high premiums or “struggling to obtain sufficient capacity in the commercial market”.

She added that in some instances the cell option may be a better solution than utilising a pure captive already in the group.

“The use of a protected or segregated cell facility (PCC) is more arms-length from the company itself and therefore might be a better fit to fund non-indemnified loss,” Weber explained.

“A PCC is a stand-alone entity with ownership, management, and control largely independent of the company seeking to insure its directors and officers.

“Decisions related to the policy’s response and the provision of Side A D&O coverage can be set up to be independent of the company. Potential concerns about influence by the company’s management and concerns about disgruntled shareholders should be ameliorated.”