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HDI Friend of the Podcast

Richard Cutcher
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HDI’s captive services bring together a dedicated, highly experienced team of financial, actuarial and legal professionals to advise your company on implementing an international non-life captive programme. Customised solutions based on personal consultation and review of each company’s unique captive situation are our specialty.

  • More than 100 active captive programmes.
  • Global support through 30 producing offices.
  • Worldwide cover in more than 175 countries.
  • More than 25 years of captive experience.

KEY CONTACTS

Jason TYNG

ARM Vice President, Captive Lead

jason.tyng@us.hdi.global

MARCO HENSEL

Underwriting Lead, Senior Vice President

marco.hensel@us.hdi.global

Eric Joly-Pottuz

Head Centre of Excellence, HDI Global SE

eric.joly-pottuz@hdi.global

Marc Luginbühl

CEO, HDI Global SE, Switzerland

marc.luginbuehl@hdi.global

Oliver Davies

Director Distribution and Marketing, UK and Ireland

oliver.davies@hdi.global

HDI GLOBAL ON THE GLOBAL CAPTIVE PODCAST

Latam inflation drives captive interest in Puerto Rico

Luke Harrison
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Latam inflation drives captive interest in Puerto Rico

Interest in captive formations in Puerto Rico in rising, particularly in South American countries battling extreme levels of inflation, Ruben Gely-Ortiz, president at Iron Shield II told Captive Intelligence.

Iron Shield II is an international reinsurer, domiciled in Puerto Rico, that operates as a segregated assets plan, similar to a protected cell company.

“As Puerto Rico develops as an insurance centre and gets more credibility, the interest in forming captives from bigger players is increasing,” he said.

“One of the biggest factors for new captive formations in Puerto Rico is inflation in Latin America. For example, the Argentinian currency is up 120% so we are providing a solution for economies that are not stable and helping insurers stabilise their reserves.”

Gely-Ortiz also highlighted the hardening of the commercial market as a main factor in captive growth in Puerto-Rico.

“We are seeing that reinsurance is deciding to not continue with some of these programmes, and the lack of reinsurance and commercial insurance is an opportunity for captives,” he said.

“Based on our target market, a big factor in increasing captive utilisation is inflation and devaluation of currencies.”

He said that there has been lots of captive interest from insurtech start-ups and technology companies.

“They’re expanding into new jurisdictions by using a segregated asset plan or a captive where they could then enter Colombia as a reinsurer, instead of having to raise capital to buy an insurance company in Colombia,” he said.

Gely-Ortiz noted that the domicile has historically been focused on US and Latin American businesses, “but we are trying to develop and get more captives from Asia and Australia”.

He noted that one of the main challenges the domicile is facing is the amount of time it is taking for captives to complete the application process.

“By Puerto Rican law, the Commissioner needs to respond within 60 days after the completion of a captive application,” he added. “But that’s definitely not the case, it’s taking almost a year.

“The Office of the Commissioner of Insurance (OCI) Puerto Rico is not dedicating the staff that the market deserves. Registration of captives as protected cells certainly should be within the 60-day timeframe.

“We hope that the reported increase in premium in the International Sector in 2022, well over 100%, will drive more attention from policymakers.”

Four new members voted onto VCIA Board

Luke Harrison
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The Vermont Captive Insurance Association (VCIA) has elected four new members to its board.

Voting was conducted virtually for the first time with Ian Davis, senior vice president for captive insurance at M&T Bank, Ryan Gadapee, shareholder at Primmer Piper Eggleston & Cramer, Cameron MacArthur, founder and CEO at AI Insurance, and Melinda Young, vice president of risk management Alberici Constructors, elected.

They will participate in their first VCIA board meeting in October.

VCIA was established in 1985 and provides both state and federal lobbying support for its nearly 400 members.

“On behalf of the entire VCIA Board, we are thrilled to add these new members who we know will bring new ideas and energy to the organisation,” said Tracy Hassett,  VCIA board chair and president of edHEALTH.

“It’s an exciting time as we are about to begin a strategic planning process to ensure that the VCIA remains the premier captive association and a major educational and networking resource for the entire industry.”

Kevin Mead, president of VCIA, said: “Ian, Ryan, Cameron, and Melinda, bring incredible assets to the VCIA Board.

“Not only that, they offer diverse perspectives that will be essential to our process, coming from the banking, legal, insurance software, and risk management, captive insurance fields, respectively.”

GCP Short: Medical risk management for group captives

Richard Cutcher
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Joe Parrilli, Captive Resources
Joan Enoch, Lift-All Company
Mike Van Ham, Captive Resources

This GCP Short, produced in partnership with Captive Resources, is all about medical risk management and the benefit to group captive members. Richard is joined by:

Joan Enoch, Human Resources Manager at Lift-All Company, Inc, a member of the Well Health group captive

Mike Van Ham​​​​, Senior Vice President for Health & Wellbeing at Captive Resources.

And Joe Parrilli, Senior Vice President for Medical Stop Loss at Captive Resources.

Joan shares her first-hand experience of being a group captive member and some of the benefits her and her company get from specific medical risk management initiatives.

For more information on Captive Resources, visit their ⁠Friend of the Podcast page here⁠.

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

Fitch affirms Vale’s captive rating

Luke Harrison
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Fitch Ratings has affirmed the rating of mining giant Vale S.A.’s Singapore-domiciled captive, Monticello Insurance Limited’s, (MIL) as ‘BBB’ with a stable outlook.

The ratings agency said it considers MIL a core captive of Brazilian company Vale, and as a result the insurer’s rating is linked to the parent’s rating, as they generally receive an insurer financial strength (IFS) rating equal to the issuer default rating (IDR) of the parent.

MIL’s rating is driven by expected support from its ultimate parent Vale S.A. MIL is wholly owned by Vale Holdings B.V. (VHBV), which in turn is 100% owned by Vale S.A.

Fitch said Vale has provided reasonable financial support to MIL and appears to support its continued solvency and viability through revolving loan agreements and issues letters of credit (LOCs) to fronting insurers and provides timely capital injections when needed.

Reserve calculations are vetted by MIL’s main fronting companies and calculations were periodically reviewed by a third-party actuarial group, Marsh Canada.

The last major injections totalled $241m in 2012 and 2013, and since then, there has been no need for such support.

The captive’s parent does not have a formal investment policy, and the main investment is in the form of an uncommitted revolving inter affiliate loan facility to Vale S.A., which can be redeemed in the short term and the rest is mainly held in cash.

MIL’s net earned premium was 93.2% in December 2022. The ratings agency said the insurer is protected from extremely large losses through reinsurance contracts, and the large contracts are well diversified across an adequate number of mostly ‘A-‘ rated reinsurers or above.

In 2022, MIL showed a significant improvement in its profitability index, and the ROAE was positive at 18.5%. The insurer had profits of $48.7m in the last year.

Fitch said that despite the good performance in 2022, given the nature of the risks covered, MIL’s result is very volatile and may suffer large variations depending on the assessment of its provisions, which may result in a significant deterioration in the loss ratio.

MIL’s capitalisation remains strong and leverage is quite low.

“Capitalization and leverage ratios could be negatively affected by potential large losses; however, Fitch believes parental support would be forthcoming, if needed,” the ratings agency said.

Domicile Wars: Innovation, track record keeps Guernsey on top of European pile

Luke Harrison
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Domicile Wars: Innovation, track record keeps Guernsey on top of European pile
  • Guernsey has captive market has benefited from hard market conditions
  • Long history of innovation, captive focus makes Guernsey a domicile of choice
  • Domicile beginning to address concerns over talent pool
  • A UK captive regime could be a threat, if it was modelled on Guernsey, Bermuda

Guernsey’s drive to pioneer innovative captive legislation and its history of captive success have helped it take the crown as Europe’s largest, and fastest growing domicile in recent years.

However, the jurisdiction will have to battle certain challenges, such as attracting fresh talent and seeing off potential competition from increasing domicile options in the region, if it is to maintain this title.

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AM Best to review rated fronting carriers following Vesttoo fraud claims

Luke Harrison
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AM Best to review rated fronting carriers following Vesttoo fraud claims

Ratings agency AM Best said it will review all its rated fronting carriers in light of the fraud claims concerning Vesttoo and its collateral arrangements.

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

The ratings agency said: “With the recent published news reports on Vesttoo, an insurtech platform, AM Best is monitoring the rapidly evolving situation and reviewing its rated fronting carriers and other insurers that have material amounts of reinsurance counterparty credit risk and reliance on various forms of collateral. Based on this review, rating actions will be taken as warranted.”

AM Best said that that the level of collateral in a reinsurance transaction will be dependent on the cedant’s reinsurance counterparty risk appetite, as well as regulatory requirements.

When it assesses an insurance company’s balance sheet, AM Best said it considers factors including the quality of reinsurance, dependency on reinsurance and the appropriateness of the reinsurance programme.

The fronting market, particularly in the United States where growth has been rapid in recent years, driven by programme business more than captives, has been under scrutiny since AM Best revised its outlook for Trisura Group to negative from stable.

The Canadian insurer had revealed a CAD 81.5m one-time write-down of reinsurance recoverables in Q4 resulting from its fronting of a US property and casualty captive programme.

Captive Intelligence published a long read in April explaining why the Trisura impairment is a cautionary tale for captive fronting business.

Brady Young, chairman of Concert Group, a fronting company focused on captive business, told Captive Intelligence at the time that there was risk of a race to the bottom as the fronting market booms.

“There has been huge growth over the past five years in the fronting of programme business, but a lot of that is not really captive fronting,” Young said.

“It is fronting for MGUs that might involve a captive as well, but I wouldn’t consider it classic captive fronting.

“In the programme fronting, the increased competition and growth does risk a race to the bottom with regards rates and operations.

Delaware DoI takes battle with IRS to Supreme Court

Luke Harrison
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Delaware DoI takes battle with IRS to Supreme Court

The Delaware Department of Insurance (DDOI) has appealed to the Supreme Court to stay proceedings and recall the mandate of the Third Circuit Court of Appeals, which would require the DDOI to provide the Internal Revenue Service (IRS) with specific 831(b) documentation.

In April the 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 United States Court of Appeals for the Third Circuit on 21 April affirmed the District Court’s decision that the McCarran-Ferguson Act does not protect the documents requested and the threshold for constituting the ‘business of insurance’ was not met.

“The issue is the order of the Third Circuit Court of Appeals affirming the decision of the United States District Court for the District of Delaware enforcing an IRS summons that requires the Department to violate Delaware insurance law,” the DDOI said in its appeal to the Supreme court.

The DDOI said that these courts found in error and that a state insurance regulatory statute did not reverse-preempt a federal statute having nothing to do with insurance regulation.

“This error raises “critical questions” of federalism that require Supreme Court intervention to settle the circuit split caused by the Third Circuit Court of Appeals’ interpretation of the McCarran-Ferguson Act.”

The DDOI argued that the Third Circuit’s precedential opinion and simultaneous issuance of the mandate will cause irreparable harm.

“It requires a state Insurance Commissioner to violate the express command contained in the insurance laws of his own state, an outcome that upends Congress’ stated purpose in enacting the McCarran-Ferguson Act,” the DDOI said.

Section 69203 of the Delaware Insurance Code is at the heart of this dispute as the provision prevents the Insurance Commissioner from releasing certain information provided by Delaware insurance companies in the licensing and financial examination process without a written agreement to hold that information confidential and “in a manner consistent with the statute”.

AZ captive closes its first $50m catastrophe bond

Richard Cutcher
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AZ captive closes its first $50m catastrophe bond

SageSure, a managing general underwriter focused on catastrophe-exposed property in the United States, and Arizona captive Anchor Re have secured a $50m catastrophe bond providing multi-year retrocessional protection against a series of US named storms.

The protection is for SageSure’s carrier partners SURE and SafePort and is Anchor Re’s debut catastrophe bond.

SageSure said the bond is unique unique in the insurance-linked securities (ILS) market because it is structured to use Property Claim Services (PCS) county-level catastrophe loss reporting in the trigger.

“We’re excited to see strong investor support for Anchor Re’s first catastrophe bond,” said Travis Lewis, director of Anchor Re.

“Anchor Re was formed to maximize capital and capacity efficiency, and this innovative catastrophe bond further bolsters the support it can provide for SURE and SafePort’s reinsurance programs.”

Anchor Re was established as a captive reinsurer in 2020 which provides scalable capacity exclusively for SageSure’s carrier partners. To date, Anchor Re has raised $100 million in capital.

Captive Intelligence reported yesterday that asset management giant Blackstone has used its Vermont-domiciled captive to sponsor a $250m indemnity catastrophe bond covering named storms and earthquakes in the United States and Canada.

On both cat bonds, Swiss Re Capital Markets acted as the sole structuring agent and bookrunner.

“Swiss Re Capital Markets is proud to have structured and placed SageSure’s innovative second and subsequent event cover for its captive reinsurer,” said Jean-Louis Monnier, head of ILS at Swiss Re.

“This fourth issuance under the Gateway Re program is designed with structural features that are accretive to ILS investors, while it provides valuable sideways coverage for Anchor Re. The continued success of the franchise reaffirms SageSure’s presence as a prominent ILS sponsor and investors’ confidence in SageSure and the Gateway Re program.”

Blackstone captive sponsors Swiss Re structured cat bond

Richard Cutcher
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Asset management giant Blackstone has used its Vermont-domiciled captive to sponsor a $250m indemnity catastrophe bond covering named storms and earthquakes in the United States and Canada.

Swiss Re Capital Markets structured and placed the issuance of the insurance-linked securities under Wrigley Re Ltd, a Bermuda exempted company licensed and registered as a special purpose insurer.

Gryphon Mutual Property Americas IC, a Vermont-domiciled real estate captive owned by Blackstone and managed by Aon, is the sponsor of the catastrophe bond.

It is said to be the first corporate catastrophe bond covering named storms on an indemnity basis, and the first corporate catastrophe bond covering multiple countries.

“Swiss Re Capital Markets is proud to have set a milestone with the structuring of Blackstone’s first indemnity issuance,” said Jean-Louis Monnier, Head of ILS at Swiss Re.

“This transaction is the result of a collaboration between Blackstone and ILS investors to develop a new solution that fits the challenges of an asset manager and expands the boundaries of the ILS market. It is a milestone in the ILS market’s path to realize its potential as an efficient provider of peak peril capacity.”

The $100m Series 2023-1 Class A notes provide protection on an indemnity per occurrence basis for named storms in the US and Canada and an indemnity annual aggregate basis for earthquakes in the US excluding California and Canada.

The $150m Series 2023-1 Class B notes provide protection on an indemnity annual aggregate basis for earthquakes in California.

Both classes of notes have a three-year risk period starting 28 July, 2023 and introduce an innovative risk-based premium adjustment mechanism to adjust for changes in risk in the covered real estate portfolio.

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