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Florida bill could have “devastating impact” on RRGs

Luke Harrison
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A Florida bill that would harden certain financial standards for risk retention groups (RRGs) and surplus lines carriers could cause a “devastating” impact on most of the RRGs doing business in the state, the executive director of the Risk Retention Group Association (NRRA), Joseph Deems has said.

RRGs are regulated differently from captives and commercial insurers because they come under the Federal Liability Risk Retention Act (LRRA) of 1986.

Deems highlighted that by imposing a requirement of an AM Best “A” rating and a minimum financial size of $100M in capital surplus in order for an RRG to write commercial auto liability in Florida, the Bill unlawfully seeks to regulate RRGs, and unlawfully discriminates against those RRGs that do not obtain such ratings.

“If passed, Florida Bill 516 will have a devastating impact on not only trucking and transportation risk retention groups registered in Florida, but actually every RRG writing commercial liability, including auto,” Deems said.

“Hundreds, if not thousands of RRG owner-insureds could lose their coverage.”

The Bill’s passing may also open the door to significant threats to RRGs in other states.

If passed, starting 1 July 2023, Bill 516 will potentially impact 96% of the 140 risk retention groups registered in Florida from continuing their business, according to NRRA.

“If history is any example, regulatory intervention calculated in response to the bill could actually disqualify or interfere in a number of ways with RRG commercial liability insurance,” Deems said.

The Florida House Commerce and Senate Appropriations Committee hearings are set to take place 10 April and 12 April respectively.

“We need to stop this bill before it passes because, if it passes, suing the state will take years and will be too late to help these impacted RRGs,” Deems said.

Captives “booming”, EB trending away from global underwriting – Ludovic Bayard

Richard Cutcher
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Captives “booming”, EB trending away from global underwriting – Ludovic Bayard

Businesses have become more likely to go straight into a captive structure when centralising international employee benefits programmes, rather than pursuing global underwriting first, according to Ludovic Bayard, CEO of Generali Employee Benefits.

Bayard was guest co-host of GCP #82, in which he discussed GEB’s own portfolio, where he sees most growth and the opportunities for captive EB programmes to contribute to group ESG and DE&I initiatives.

He also reflected on GEB’s move to Luxembourg to become a regulated reinsurance company in 2018.

Generali Employee Benefits has had a focus on captive business for more than 20 years and Bayard said it’s portfolio today totals approximately €1.6bn in gross written premium across captive, pooling and global underwriting structures.

Of the €1.6bn, 50 captives programmes account for around €700m in annual premium, while €500m is from pooling clients and €400m is from global underwriting and reinsurance only clients.

Bayard said the captive segment is the fastest growing of the three.

“It’s fair to say that we see a bit of decreasing of interest in the global underwriting,” he explained.

“We start to see again an increase of interest in the pooling. It was flat in the last two, three years, but it’s starting again, while on captives it’s really booming. I would say it’s double-digit growth since at least five years.

“On global underwriting, there was a huge interest 10 years ago. Those who started from the very beginning are now ready for the captive. So in the recent two, three years, many of these global underwriting clients have switched to the captive concept.

“The most recent ones are still, let’s say, discovering the world and the difficulties of EB. But we don’t see many new requests on the global underwriting.”

It was previously expected, and often experienced, that clients would go through the full journey of first pooling international employee benefits, before participating in global underwriting for a more centralised buying approach and ultimately ending up with global EB in a captive.

Bayard said, however, that nowadays it is more common for companies to head straight for the captive approach but it still varies from case to case.

“It really depends on the DNA, on the culture of the company,” he added.

“You can have companies who jump to the captive directly, maybe because they already have the P&C mindset and the structure. You have clients who shift from pool to captive.

“There is no average pattern. It’s really about the culture, also the people involved in the programme that make the difference.”

In the full podcast interview, Bayard also discussed some of the challenges businesses must overcome to pursue and implement a captive-backed international employee benefits programme, how GEB is tackling data management and the opportunity for captives to contribute to group ESG and DE&I initiatives.

Listen to the full GCP #82 episode here, or on any podcast app. Just search for ‘Global Captive Podcast’.

Labuan, Singapore add eight new captives in 2022

Luke Harrison
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Asia Pacific’s largest captive domiciles, Labuan and Singapore, added eight new captives between them in 2022, with Labuan adding five new captives and Singapore licensing three last year.

The number of captives domiciled in Labuan at the end of 2022 was 67, while the total number of captives in Singapore at the end of 2022 was 82.

At the end of 2022, Singapore had one life captive insurer, 77 general captive insurers, and four composite captive insurers.

All three of Singapore’s new captives in 2022 were general captive insurers.

Captive Intelligence reported last month that Singapore-domiciled Odeon Insurance Re Pte Ltd had become the first Asian captive to become a signatory of the United Nations Principles for Sustainable Insurance.

At the end of 2022, Labuan’s 67 captives included 39 pure captives, 15 rent-a-captives and 13 protected cell companies (PCC).

Labuan also had 24 individual cells at the end of 2022.

One captive domiciled in Labuan surrendered its licence in 2022, while Singapore had surrendered five captive licences in 2022.

Luxembourg regulator open to PCC discussions in domicile

Richard Cutcher
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Luxembourg regulator open to PCC discussions in domicile

Valérie Scheepers, head of the non-life and reinsurance department at the Commissariat aux Assurances, has said the regulator is open to discussing the possibility of introducing protected cell companies (PCCs) in Luxembourg if there is industry demand.

With Gibraltar leaving the European Union with the United Kingdom post Brexit, Malta is now the only EU state that has PCC legislation. The concept has proved popular in the domicile with 14 PCCs currently active.

Speaking in an interview on episode 82 of the Global Captive Podcast, Scheepers said the onus was industry to present a real business case so rules could then be developed.

“We are absolutely open to the development of new activities if there is a real demand for it,” Scheepers said.

“We have a preference for developing the rules when dealing with practical cases. Otherwise, we have the risk of having an overly burdensome and not appropriate regulatory regime.

“So should we receive a case, then we will consider it. We are absolutely open to it, but we we need a practical case.”

One of the sticking points for developing an attractive PCC offering in Luxembourg is the fact that the regulator is most comfortable regulating reinsurance captives, rather than direct writing captives which cells are often used for.

If a direct writing captive is established in Luxembourg, then the CAA requires it to be supported by a reinsurer.

“It might be a challenge for us because we prefer to have a composite of a direct captive and then the reinsurance after,” Scheepers added.

“But, once again, if we have an example we are really open to analyse it. But as of today, we were not approached with a real case.”

There was nine new reinsurance companies licensed in Luxembourg during 2022, bringing its year-end total to 195. The vast majority of those are captives.

Although applications to form this year would usually begin arriving in the summer, Scheepers said 2023 is already proving “very much different”.

“We already have now regular meetings with new candidates,” she added.

“The demand is quite high, we see it, it’s clear, and it starts early in the year, so that it is very likely that 2023 will be even better than 2022 in the creation of new companies. So I am quite positive at the moment.”

GCP #82: GEB’s Ludovic Bayard and Luxembourg captive regulator Valérie Scheepers

Richard Cutcher
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Ludovic Bayard, Generali Employee Benefits
Valérie Scheepers, Commissariat aux Assurances

In episode 82 of the Global Captive Podcast, supported by the EY Global Captive Network, Richard is joined by guest co-host Ludovic Bayard, CEO of General Employee Benefits, and Valérie Scheepers, head of the non life and reinsurance department at Luxembourg’s Commissariat aux Assurances.

Ludovic discusses Generali’s employee benefits captive portfolio, some of the challenges and opportunities he sees in the space, as well as GEB’s own move to Luxembourg five years ago.

Valérie will bring us up to speed on recent and future captive licensing activity in the EU’s largest captive domicile, imminent changes to captive regulation in Luxembourg and also has some very interesting comments regarding the prospect of cell companies being introduced in the jurisdiction.

For the latest global captive news, analysis and though leadership, visit Captive Intelligence.

DARAG Bermuda concludes agreement with Cayman captive

Luke Harrison
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Legacy acquirer DARAG has concluded an agreement between an undisclosed Cayman-domiciled captive and its Bermudian insurance carrier, DARAG Bermuda.

The agreement allows the counterparty to release capital back to members of the wider group.

Joel Neal, executive vice president, M&A, at DARAG North America, said: “It’s a pleasure to renew this business with our Cayman-based partner.

“In doing so, we are enabling them to concentrate on their primary business operations and underwriting profitability, freeing up trapped capital and improving efficiency. Our pipeline for 2023 exceeds expectations and we look forward to announcing further transactions.”

The transaction structure is a renewal of a previous novation agreement, with DARAG Bermuda assuming additional policy years.

Through this, the captive is able to achieve full legal finality for its workers’ compensation, general liability and auto liability lines of business for the added policy years.

Tom Booth, CEO of DARAG said: “DARAG’s exceptional track record as a trusted partner in servicing small to mid-sized captive and self-insured portfolios in North America is a testament to our expertise in this niche market.”

Kate Storey departs Walkers, becomes full-time NED

Richard Cutcher
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Kate Storey departs Walkers, becomes full-time NED

Guernsey lawyer Kate Storey has chosen to become a full-time non-executive director (NED) for captive insurance and investment fund structures domiciled in Guernsey.

Storey had been a partner at Walkers since 2018, having previously worked at Appleby, but has opted to focus on NED positions. She will also offer services as a legal and regulatory consultant.

Asked why she was keen to pursue more NED opportunities and depart full-time law, Storey told Captive Intelligence: “It’s an opportunity to have a much deeper involvement in businesses than you have as an external legal advisor, and directing strategy rather than merely advising on it is more interesting to me at this stage of my career.”

The Guernsey captive community has launched two educational initiatives concerning insurance management and NEDs this year – an updated course in international insurance management and the Non-Executive Director (NED) Development Programme.

As captives have become more sophisticated, taking on more risk and writing new lines of insurance, the demands and profile of NEDs are only expected to increase.

“Captive governance requirements, as for any other financial services business, are ever increasing, for example in the area of climate change and broader ESG considerations,” added Storey.

“However, Guernsey is outside of Solvency II and therefore has been able to develop its own proportionate, risk based approach to regulation and governance, aligned with IAIS standards.”

Captive Intelligence hosted a podcast discussion in December 2022, which addressed the varied requirements and definitions of NEDs, also known as board directors, between international captive domiciles.

Andrew Bradley, formerly head of group risk services at Nestle and now an outside board member of a captive, said in the podcast that he does not believe the true value of outside board members is currently being realised.

“Outside captive board members aren’t necessarily taken up and included in a board unless it’s required by the local captive domicile,” he said.

“I found a few cases where forward thinking companies have expressly gone out to have not only one, but sometimes two outside board members to challenge what they do and have that extra experience in managing the company.

“So I think this is still very much work in progress and an important part of captive governance, but I think people somehow need to see the value of outside board members because I’m not sure whether that’s coming through just at the moment.”

AM Best affirms ratings of NiSource captive

Luke Harrison
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AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Utah-domiciled NiSource Insurance Corporation (NICI).

NICI is a single-parent captive wholly owned by utilities company NiSource Inc and the outlook for the ratings is stable

The company serves approximately 3.5m natural gas customers and 500,000 electric customers across six US states.

The captive provides all-risk property, workers’ compensation, excess general and automobile liability, medical stop-loss, long-term disability and group life insurance for the parent and its affiliates.

The ratings reflect NICI’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The combined and operating ratios have outperformed the industry averages, due to a low underwriting expense structure and loss ratios trending favourably.

Since inception, NICI has generated profitability at levels generally equal to or better than its industry peers.

Over the years, retained earnings have boosted NICI’s balance sheet strength with future earnings expected to produce more of the same.

The captive’s balance sheet strength assessment of very strong reflects the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the company’s strong liquidity measures, conservative investment philosophy and history of favourable reserve development.

AM Best said it has “taken a balanced view of NICI’s overall business profile, which albeit limited in scope, maintains inherent advantages as a single-parent captive with immediate access to business and resources along with the broader financial wherewithal of its ultimate parent”.

The ratings agency also noted that downward rating pressure could result from a decline in the company’s operating performance, an increase in underwriting leverage, or an outsized loss event that triggers a sudden decline in risk-adjusted capitalisation.

In addition, rating pressure could occur if there are any sudden and material changes in the financial and credit profile of the parent.

CBIZ completes captive formation in Vermont

Richard Cutcher
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CBIZ completes captive formation in Vermont

Professional services firm CBIZ has established a single parent captive in Vermont in response to seeing rates and deductibles increase and wanting to put in a long-term risk financing strategy.

Rockside Insurance Company was licensed on 15 March and will be managed by Strategic Risk Solutions.

Kristen Peed, director of corporate risk management at Cleveland, Ohio headquartered CBIZ, joined Vermont’s deputy commissioner for captive insurance Sandy Bigglestone to discuss the company’s rationale and journing in establishing the captive for a GCP Short recording at the CICA International Conference in March.

“We really started looking at a captive during the hard market because rates were going up, our deductibles were going up,” Peed said.

“But my proposition to our senior leadership was really looking at it from a long-term strategy. How could we utilise it five years from now, 10 years from now?

“CBIZ is a growing company, we’ve doubled in size since I joined, and so our risk needs are going to be very different in the future than they are maybe right now.

“Starting this captive journey and getting through it, it’s been pretty exciting to see what we might be able to do with it in the future as well.”

Bigglestone explained that Vermont’s mantra that “when you’ve seen one captive, you’ve seen one captive”, originally coined by Ed Meehan in the 1980s means that while some business cases for formations may look familiar, it is the job of the regulator to look at each application in a unique way and review it on its merits.

“We see how they’re articulating their business plan, we see their mission as an organisation, we understand how they approach their risk management and have a robust risk management and loss prevention programme,” Bigglestone said.

“And those are sort of the things that we see that often differ from other organisations, even writing the same lines of business.

“So we appreciate each company on its own merits and I’m very excited for this application and seeing it through and seeing how it develops and evolves in the next few years.”

Peed said that although there were some frustrations along the way, she enjoyed the full formation process, from issuing requests for proposals (RFPs) and the feasibility study, to domicile selection and the application itself.

“One of the best things that I enjoyed about the process was getting to know our finance department at CBIZ,” she added.

“Several of them are going to be sitting on our board with me and so that’s been really neat.

“And then working with the different service providers and the regulators in Vermont.

“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.”

Listen to the full 17-minute episode with Sandy and Kristen here, or on any podcast app. Just search for the ‘Global Captive Podcast’.

GCP Short: The CBIZ captive formation in Vermont

Richard Cutcher
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Sandy Bigglestone, State of Vermont
Kristen Peed, CBIZ

In this GCP Short, produced in partnership with the State of Vermont, Richard is joined by Kristen Peed, Director of Corporate Risk Management at professional services firm CBIZ, and Sandy Bigglestone, Vermont’s Deputy Commissioner for Captive Insurance.

Kristen brings listeners up to speed on CBIZ’s recent captive formation in Vermont – Rockside Insurance Company – and shares her experiences of the full startup process.

Sandy discusses the CBIZ application and updates listeners on recent formation activity in the State.

For more information on Vermont as a captive domicile, visit its Friend of the Podcast page here.

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