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GCP Short: The John Deere captive, evolution and future

Richard Cutcher
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GCP Short: The John Deere captive, evolution and future
Aileen Krehbiel, John Deere
Sammi Jones, John Deere
Heidi Rabtoy, State of Vermont

In this GCP Short, produced in partnership with the State of Vermont, Richard has another really interesting, and high profile, captive case study, as listeners hear from the John Deere captive team.

The manufacturing and agricultural equipment giant has owned a captive in Vermont since 2004.

Aileen Krehbiel, manager of captive insurance programs at John Deere, and Sammi Jones, senior financial analyst at the company, discuss the captive’s profile today, and how its grown and evolved over near 20 years.

We also hear from Heidi Rabtoy, chief examiner at the Vermont Department of Financial Regulation, to provide some perspective on how they regulate older, larger captives and the unique considerations concerning extended warranty business.

For more information on the State of Vermont’s captive sector and regulation, visit their Friend of the Podcast page.

For the latest breaking news, analysis and thought leadership from the global captive market, visit Captive Intelligence and sign up to our twice weekly newsletter here.

ZGEBS to launch ‘Underwriting Year’ customer reporting capability

Luke Harrison
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ZGEBS to launch ‘Underwriting Year’ customer reporting capability

Zurich Global Employee Benefits Solutions (ZGEBS) is launching an ‘Underwriting Year’ customer reporting capability which it said is a response to a growing demand for the product.

The new Underwriting Year information will allow customers, including captives, to receive insights detailing how their local insurance policies with ZGEBS’ network partners are performing from a profitability perspective consistent with the renewal term; for example 1 April to 31 March.

Premiums and claims can be allocated to the correct underwriting period and customers will have an accurate view of a policy’s underwriting performance.

Daniele Zucchi, managing director of Sigurd Ruck AG, said ZGEBS has been making a “positive step” change in this area for some time and the captive has been “enjoying the steadily increased accuracy and benefits of Underwriting Year information for a number of years.”

Sigurd Rück AG is a Switzerland domiciled captive owned by Italian multinational Saipem.

Collaboration within its global network will allow ZGEBS to deliver Underwriting Year information across 95% of its portfolio.

Zurich said that industry standards were previously limited to a calendar year view and inconsistent across geographies, reducing the ability to conduct a clear assessment of the programme performance.

“Underwriting year data is critical to understand the true performance of your programme,” said Sebastian Willmanowski, Mercer Marsh Benefits multinational financing leader, Europe.

“Zurich has been providing high quality data for many years enabling informed decision making. It is pleasing to see that this standard is now available across almost the entire portfolio.”

ZGEBS is part of Zurich Insurance Company Ltd’s business unit Zurich Integrated Benefits, which brings together the various Zurich businesses providing global expertise in employee benefits (EB).

Gilles Finkestein, head of customer and distribution management for ZGEBS, said: “ZGEBS has, for several years, been working with its network insurer partners and operations professionals to fill data gaps which have been holding back this full capability.

“We are delighted that we are now 95% complete across our entire portfolio, complementing our network covering almost 150 territories, by far the broadest coverage of any Global Benefits Network.”

Large corporates dominate increasing captive activity in Latam

Luke Harrison
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Large corporates dominate increasing captive activity in Latam
  • Captive use increasing but market commanded by large business
  • Single parent most common captive structure but cell use rising
  • Offshore domiciles such as Bermuda, Cayman and Barbados remain popular, Vermont targets Mexico
  • Captive education and fronting capacity pose key challenges for Latam growth

The use of captives by companies based in Latin America is increasing, but a significant gap remains between the number of large corporates using captives compared to the number of medium and smaller businesses utilising them.

Despite proliferating captive use, it is generally considered that the number of companies with captives in Latam is lower than other regions such as the United States and Europe.

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Pure captives rise in Cayman

Luke Harrison
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The Cayman Islands Monetary Authority has published its latest captive figures for the second quarter of 2023, showing an increase in pure captives and segregated portfolio companies (SPCs) compared to its 2022 year-end figures.

The number of pure captives domiciled in Cayman is now 281, an increase of four compared to 2022.

There were 155 SPCs in Cayman at the end of 2022, with this number dropping to 153 during the first quarter of 2023, before a further two were added in Q2 to bring the total back to 155.

The number of group captives has remained steady at 127. There was a drop off by one in the first quarter, with one new licenced last quarter.

Pure captives in Cayman are now writing $4,252,138,860 in total premium, while group captives are writing $3,645,978,371. SPCs are responsible for $2,700,382,688 in premium.

Assets under management (AuM) totals $18,740,592,193 for pure captives, $10,541,990,658 for groups and $10,718,644,872 for SPCs.

Captive Intelligence’s data on the number of captives shows that there was a total of 33 captive formations in the Cayman Islands in 2022, which took the total number of captives in the domicile to 559 at year-end.

WTW hires Adrian Chua as APAC regional lead for captives

Luke Harrison
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WTW hires Adrian Chua as APAC regional lead for captives

WTW has appointed Adrian Chua as APAC regional lead for captive & insurance management solutions, strengthening the captive manager’s presence in the region.

Chua brings 20 years of insurance business experience, including recent roles as chief financial officer and chief strategy officer at Cigna Singapore.

He is a committee member with the Institute of Singapore Chartered Accountants, providing insights to the Insurance Committee and the IFRS 17 Workgroup.

“Adrian’s experience and insights will be critical in bringing our captive and alternative risk transfer solutions to meet companies’ risk financing needs in this region,” WTW said.

WTW’s appointment of Chua follows the news back in May that previous WTW director of captive and insurance management for Asia Pacific, Lawrence Bird had left the broker to join Marsh Captive Solutions in the newly created role of captives consulting leader, Asia.

Bird began working for Marsh last month and will be leading strategic client conversations on captives across the region, including feasibility studies, strategic captive reviews, and long-term captive strategies for clients.

Asia remains a key growth area for captives. Three new captives were established in Singapore in 2022 with five formed in Labuan.

For more captive domicile statistics, visit the Captive Intelligence data page.

IRS demands PCC provides documents in 831(b) tax case

Luke Harrison
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IRS demands PCC provides documents in 831(b) tax case

The Internal Revenue Service has filed a lawsuit asking an Arizona District Court to force Coral Beauty Insurance PCC to provide documentation for its investigation into potentially abusive micro-captive transactions between the captive and Radiologic Associates of Northwest Indiana P.C. during 2019 and 2020.

While the Respondent has provided some of the documentation requested, the IRS has claimed the PCC has not provided all.

According to Court filings, Coral Beauty was originally formed and licensed in Anguilla in 2011, before receiving a licence in Delaware in 2018.

Coral Beauty Insurance PCC is no longer licensed in Anguilla, while in Delaware the structure now appears to have been transformed into a series captive and named Fortress Coral Beauty Series.

“It has failed to produce all documents required by the summons and has thus failed to fully comply with the Summons,” the IRS said.

The IRS said that the summoned documents for years 2015-present will bear on whether Coral Beauty made valid section 831(b) exclusions or whether they were abusive.

Respondent’s exclusions were specifically for insurance premiums of approximately $800,000 and $750,000, paid by Radiologic in 2019 & 2020.

Some of the documentation Coral Beauty has provided to the IRS include its 2018 Delaware licence, and its 22 December, 2015 and 26 September, 2018 management services agreements with Artex.

“Examination of documents from these years will provide Revenue Agent Schiffer with a comprehensive outlook of Respondent’s arrangement with Radiologic over the years and its “insurance” related activities, dating back to its inception,” the IRS said.

The IRS claims Coral Beauty could be acting as an abusive tax shelter for Radiologic rather than paying legitimate insurance premiums.

In April, the Delaware Department of Insurance (DDOI) lost its latest attempt to block an IRS summons concerning 831(b) captives managed by Artex Risk Solutions and Tribeca Strategic Advisors, wholly owned by Artex, in the State.

The IRS originally issued its summons to the DDOI on 30 October, 2017 during its investigation into Artex and Tribeca, seeking filings and communications between the Department and the captive managers.

The IRS said that Coral Beauty should be ordered to appear and show cause before the court why it should not be “compelled” to produce the books, records, papers, and other data as specified in the pending Summons document requests.

The Court has agreed, and Coral must now appear before it to show cause as to why it should not be compelled to obey the request of the Summons.

QBE launches group medical stop loss programme

Richard Cutcher
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QBE launches group medical stop loss programme

QBE North America has launched Agora, a new group captive programme for medical loss insurance targeting organisations with at least 50 employees, and backed by a Vermont protected cell company (PCC).

Captive Intelligence revealed last week the insurer had formed a sponsored captive in Vermont, Champlain Insurance PCC, in order to support its medical stop loss products and services.

QBE said among the advantages of Agora would be the provision of fully flexible plan design, cost containment solutions, stop loss policy terms, transparent underwriting and monthly experience reporting, and a lack of adverse contract language and restrictive long-term commitments.

“We saw an opportunity to better support employers who self-fund their health plans by expanding our captive service model,” said Tara Krauss, head of accident & health at QBE North America.

“Our new model provides improved efficiencies to reduce unnecessary costs, long-term commitments, and potentially adverse contract terms. Many employer-groups lack the resources and fundamental knowledge to effectively launch a captive solution for their self-funded health plan.

“With Agora, QBE’s segregated cell company, these employers now have an easy point of entry to the captive space as well as the ability to customize a solution to meet a variety of stakeholder needs. It’s about as turn-key as you can get for captive participation.”

In the carrier’s expanded service offering, The QBE Captive Curve, it will provide solutions including agency branded captives, closed group captives, single-parent captives, and insurance management services for employers that already own a captive.

“In addition to having significant fixed cost savings, captives can address specific risk management needs, which is why approximately 90% of Fortune 500 companies have established wholly owned captive subsidiaries,” said Matt Drakeley, vice president of specialty markets for QBE’s accident & health business.

“Organisations with self-funded health insurance plans in a captive have a better view of the factors driving medical claims, which can facilitate more proactive and cost-effective healthcare.

“Smaller employers can also obtain the benefits of captives by joining a group captive. Counting both wholly owned and group structures, nearly 3,400 captives in the U.S. insure a wide range of insurance risks. We’re thrilled to offer Agora to customers as an easy-to-access and flexible group captive solution for medical stop loss insurance.”

USA Hockey captive continues to operate as business enabler

Richard Cutcher
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USA Hockey captive continues to operate as business enabler

USA Hockey’s captive has been a business enabler since its original formation in the 1980s and continues to be an essential risk management tool today.

Speaking in an exclusive interview on the Global Captive Podcast Kelly Mahncke, assistant executive director of finance at USA Hockey, said the sports body first utilised a captive in the 1980s due to the liability insurance crisis in the United States.

“In order to be able to play hockey and open up the rinks, we had to have liability insurance,” Mahncke said.

“That was imperative and the captive really helped us be able to do that and also improve the way that we do business and operate. We really had a focus on better risk management and it really has helped us in our operations since then.”

Having the captive in place has also changed the way the business manages its membership. Originally it was teams who were registered, but providing insurance through a captive meant they needed to register each player to insure them for player accident.

“And we could then, of course, have each member sign waivers, and that enabled us to really reduce the risks and improve the sport and helped us, in terms of financially, to be more viable,” Mahncke added.

The current captive, Vermont-domiciled Hockey and Rink Protection, Inc, is managed by Aon, and is used today to provide excess sexual abuse and molestation (SAM) coverage, the retention for general liability, an umbrella for player accident and also legal expense reimbursement.

GCP #91: USA Hockey, the QBE PCC and more interviews from VCIA 2023

Richard Cutcher
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GCP #91: USA Hockey, the QBE PCC and more interviews from VCIA 2023
TJ Scherer, Spring Consulting Group
Kelly Mahncke, USA Hockey
Dale Sagen, QBE North America

In episode 91 of the Global Captive Podcast, supported by the EY Global Captive Network, Richard shares five short interviews he recorded at the VCIA annual conference in Burlington, Vermont earlier this month.

01.05 – 04.17: New Spring Consulting hire T.J. Scherer discussed his role as vice president with a focus on propery & casualty and his captive background.

04.36 – 08.20: Kelly Mahncke, CFO of USA Hockey, details how the sports organisation utilised its Vermont captive, Hockey and Rink Protection, Inc.

09.16 – 16.09: Dale Sagen, recently appointed as Vice President and Business Development Leader for Cell Captive and Accident & Health at QBE North America, discusses the insurer’s formation of Champlain Insurance PCC in Vermont and how it will support its medical stop loss services.

16.38 – 22.21: Dan Duncan, captive specialist at Agile Premium Finance, a business that is working with captives on providing premium financing.

22.55 – 29.53: Bill Hodson, of Gulfstream Risk Advisors, and Rick Wiseley, co-founder of insurtech Stere, explain embedded insurance and why they see an opportunity for collaboration with captive insurers and risk retention groups (RRGs).

For the latest news, analysis and though leadership from the global captive market, sign up to the twice-weekly Captive Intelligence newsletter.

Regulator, White Rock prepares Bermuda legal action, Vesttoo files for bankruptcy protection

Luke Harrison
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Regulator, White Rock prepares Bermuda legal action, Vesttoo files for bankruptcy protection

The Bermuda Monetary Authority (BMA) and White Rock Insurance (White Rock Bermuda) have jointly agreed to take the Vesttoo case to the Supreme Court of Bermuda in order to focus on pursuing maximum recovery for the (re)insureds impacted by the alleged fraud involving segregated accounts.

Meanwhile, Vesttoo filed for Chapter 11 bankruptcy protection on 14 August in US District Court in Delaware.

White Rock is the cell company owned by Aon used for various types of transactions, including transformer vehicles for insurance-linked securities (ILS) deals, captive retention, reinsurance access and legacy management.

The insurtech Vesttoo connects capital market participants with (re)insurance risk and has been embroiled in claims regarding fraudulent collateral.

The BMA and White Rock have agreed for the Bermuda Supreme Court to appoint Charles Thresh and Michael Morrison of Teneo (Bermuda) Limited to act as joint provisional liquidators (JPLs) for White Rock Bermuda with respect to the impacted Vesttoo Cells.

The JPLs and the board of directors and management of White Rock Bermuda will bring their resources together to address the matter.

Various press reports since late July 2023 have alleged claims of fraudulent letters of credit (LOCs) from a single non-US bank related to transactions that had been facilitated by Vesttoo.

In a statement concerning the Chapter 11 bankruptcy protection filing, Vesttoo’s interim CEO said: “We believe the steps we are taking are best for Vesttoo’s long-term growth and success.

“Not only will they result in a strong, more sustainable capital structure, but they will provide us with the platform to aggressively pursue all parties that harmed our business.”

AM Best noted in a report last week that although it cannot identify which bank LOCs are related to Vesttoo transactions, a broad analysis shows that LOCs against businesses with unaffiliated reinsures accounts for 22% of total collateral held.

The data shows that nearly 19% of the LOCs used for collateral in 2022 were issued by Citibank.

“The 2021-2022 data also shows insurers have added some new banks to their roster of LOC providers, and that the growth in LOCs by some banks has been notable, and particularly at China Construction Bank Corp., which increased its LOC exposure by $1.2bn in 2022 and has been named in published news reports,” the AM best report added.

The China Construction Bank (CCB) is the primary bank named in relation to the alleged collateral fraud involving Vesttoo.

LOCs are commonly used by captives to guarantee fronting programmes and the case has caught the attention of captive regulators, banks and fronting partners on both sides of the Atlantic.

The ratings agency has already stated it will review all its rated fronting carriers in light of the fraud claims.

Sandy Bigglestone, deputy commissioner for captive insurance at the Vermont Department of Financial Regulation, has been monitoring developments concerning Vesttoo and notified local captive managers on 26 July alerting them of “a critical risk involving the insurtech company, Vesttoo”.

Bigglestone told Captive Intelligence there has been no reported exposure from the industry responses received to date.

Despite the lack of known exposure, Captive Intelligence published an article last week highlighting that extra due diligence will be required from the captive market if it is to avoid a repeat of the Vesttoo fraud allegations.

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