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.
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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’.
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.
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.
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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.”
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.
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.”
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.”
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.”
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 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.
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’.
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.
Vittorio Zaniboni is captive and insurance excellence leader at EY Luxembourg. Before joining EY in September 2022, Vittorio was chief insurance officer at General Employee Benefits.
Managing Data Quality (DQ) has held a stable position within the top priorities of insurance companies, in particular for global employee benefit (EB) captives. Vittorio Zaniboni, EY Luxembourg Director and Captive & Insurance Excellence Leader, shares some practical advice for managers on how to implement data quality initiatives.
Not only do EU regulators consider Data Quality (DQ) a fundamental pillar of a successful Solvency II implementation, but the industry at large has developed a growing sensibility towards its importance in all the aspects of running business. When focusing on global EB, its role can become even more critical.
Still, research has shown that one third of insurance organisations either don’t have a DQ policy in force, or have it covering only regulatory purposes.While it is relatively easy to understand the importance of DQ in providing accurate underwriting and pricing decisions, it is also important to realise that it represents a continuous effort for companies to adopt best practices in data collection, management and analysis.
The fundamentals of Data Quality and its importance for the industry
DQ refers to the accuracy, completeness and consistency of the data sets collected and used by insurance companies. Accurate data is essential for effective decision-making, as incomplete or inconsistent data can lead to incorrect decisions.
Looking at the characteristics of EB related data, it tends to be more fragmented than data sets relevant to other lines of risks (in fact it spans across HR data, health data, financial data, personal data which often also involves the families of the employees, etc.).
The supply chains of EB data are also likely to be more complex and articulated, involving local HR departments, local brokers, third-party administrators, managing general agents, local insurers, fronting networks, etc.
This makes the challenges a global EB captive has to face to govern its DQ significantly more complex.
Implementing best practices to mitigate EB related risks
Considering that captives rely on data to underwrite and price risks accurately, inaccurate data can lead to mispriced policies, resulting in lost profits and even insolvency.
In addition, it is important to consider that the data received from the EB captive’s providers is not only used for underwriting and pricing, but for all regulatory needs, e.g., solvency capital requirement (SCR) calculations, cash and investment management, strategic decisions, risk appetite management, risk retention management and purchase of retro-protection, down to possible decisions on local benefits levels.
To efficiently ensure a proper DQ framework, EB captives can put several best practices in place:
1. Establish DQ Standards: Standards to assure data accuracy, completeness and consistency should be established in collaboration with all stakeholders, including data collectors, analysts and IT staff. They should be clearly defined, documented and communicated to all relevant parties, especially if the captive is using several fronting networks at the same time. Ensuring a consistent set of DQ standards across different fronting networks can prove to be particularly challenging.
2. Collect Relevant Data: The data collected should originate from reliable sources, such as plan administrators, medical providers, local insurers and other relevant parties, and be properly aggregated and organised by the various stakeholders along the value chain (fronting networks, global brokers, etc.). The data should also be collected on a regular basis to ensure that it is up to date.
3. Automate Data Collection: Manual data collection processes are prone to errors and inconsistencies. Captive insurance companies can use various solutions to automate data collection, such as electronic data interchange (EDI) or dedicated web-based portals. Very often EB captives tend to tame the complexity of the data sets they receive from their providers, by adopting an overly manual approach, and do not dedicate enough energy and resources to the digitalization of data-related internal processes. This approach, besides being inefficient, will rapidly show its limits, as soon as the volume and complexity of EB risk managed by the captive increases, making the scalability of this setup rather difficult.
4. Validate Data: Data validation involves checking data for accuracy and completeness. Validation processes can include data profiling, data cleansing and data enrichment. Captive insurance companies can use various tools and software solutions to do so, always focusing on preserving data integrity, while ensuring that the data flows they receive are consistent with the specifications negotiated with the data providers.
5. Integrate Data: Data integration involves combining data from different sources to provide a complete view of the risk being (re)insured. It can help identify correlations and patterns that would not be visible in individual data sets. A typical example of such integration is represented by the “medical claims reports” provided by several fronting networks to their captive clients, on their medical portfolios. In this case, the pure accounting data provided in the cession framework is not enough for captives to properly assess the performance of those schemes and needs to be integrated with non-accounting data sets. Some fronting networks have recently started to extend this approach to long-term disability (LTD) annuities, where the proper evaluation of mathematical reserves ceded to captives requires a wider range of information than that usually provided in the cession framework.
6. Monitor DQ: Monitoring should be performed on a regular basis to ensure that DQ standards are met, and issues should be addressed promptly. Regular complete audits can also help companies to i) ensure that standards are being met and ii) identify areas where further improvements are needed.
Implementing a holistic set of DQ initiatives clearly requires a multi-faceted approach that involves people, processes and technology. Diving further into the detail, here are some practical steps that captives can implement:
1. Appoint a DQmanager: The DQ manager should have the necessary skills, knowledge and empowerment to oversee and manage DQ processes in an effective way. Due to the limited headcount of most EB captives, this role does not necessarily need to be full time, but assigning DQ accountability in a clear way within the organization, is a fundamental step to ensuring an effective governance.
2. Establish a data governance framework: The framework should outline DQ standards and processes and be communicated to all relevant parties. Regular communication should be provided to ensure that all stakeholders are aware of their roles, responsibilities and interdependencies.
3. Use DQ tools: In order to identify and address DQ issues, captives should choose tools that align with their specific needs and requirements. The technology aspects mentioned above (alongside people and processes) are fundamental, but often neglected. Considering the volume and complexity of business data handled by captives, it is of critical importance to make use of the proper tools to support the DQ activity.
4. Implement DQ checks: Captives should establish a clear and articulated protocol of checks at key stages of the data lifecycle, including data collection, processing, and reporting, with acceptable ranges for every KPI, and a mechanism of escalation and alerts in case of deviations. Being concerned about DQ and “checking numbers” is not enough to execute an effective governance; it is important to lay down a complete set of checks and actions to be sure that the procedures do not remain an end in itself. Further, an important step is then to assign remediation measures to be implemented, in case a DQ issue is detected.
Ensuring DQ is essential for captives that (re)insure employee benefits: poor DQ can lead to inaccurate reporting, increased risk and poor decision-making, in so doing defeating the many advantages a corporate can achieve by consolidating its EB risk in its captive.
To achieve the goal of DQ, it is crucial to adopt a holistic approach, engaging all stakeholders, using the appropriate and relevant tools and including in the scope all the data along the value chain.
