AM Best has affirmed the Financial Strength Rating of ‘A-‘ (excellent) and the long-term issuer credit rating of “a-” (excellent) of Texas-domiciled Quanta Insurance Company. The outlook for the ratings is stable.
QIC is a single parent captive owned by Quanta Services, a specialised contracting services company, delivering infrastructure solutions for the utility, communications, pipeline and energy industries.
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On a direct basis, the captive writes workers’ compensation, commercial auto and general liability coverages to its parent and affiliated entities on an occurrence basis.
QIC’s captive orientation not only affords the company with ready access to business, but it also benefits from its parent’s extensive training, fleet management, loss control initiatives and workplace safety.
The ratings reflect QIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Experienced captive manager Christina Bell will join Davies later this year as executive vice president for the firm’s captive management division in Guernsey.
Bell, who has 35 years’ experience across the international insurance sector in markets including Bermuda, Zurich and London, has most recently served as an executive director for Aon Insurance Managers Guernsey since 2019
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In her new role, Bell will also be appointed to the board of Davies Management Services (Guernsey) Limited and lead the day-to-day operations of the Guernsey captives team.
This will include developing business strategy and growth plans, whilst aligning with Davies’ prominent multi-jurisdictional captive operations including Bermuda and the US.
Bell will report to Nick Frost, President – Captive Management, Davies, and Steven Crabb, CEO Insurance Services, Davies.
“We are delighted to welcome Christina to the team,” Crabb said.
“Her extensive international risk management experience will strengthen our captive management team, while also adding to our global capabilities and bring new opportunities to the table.”
Frost added: “As the market continues to develop, it is an important time for Davies to grow with favourable market conditions.
“We are extremely excited for Christina to join us and not only bring her years of expertise, but also open new avenues for Davies in the captive market.”
Bell is also currently chair of the Captive Committee at the Guernsey International Insurance Association (GIIA).
Simon Camilleri, former managing director of Bee Insurance, is now executive director at Artex, will continue overseeing client service and support the Artex EMEA business development team.
“Transitioning this book of business to Artex EMEA marks another step in Artex’s growth and global expansion journey, enhancing our resources, expertise and range of services for the benefit of our clients,” said Paul Eaton, CEO of Artex EMEA.
“The Bee team brings capabilities that complement our existing service offerings and build upon the foundation that has made our Malta team so successful. We are enthusiastic about the future and look forward to achieving more success together.”
Camilleri said: “The transition to an international organization will help our current and future clients take advantage of the expertise, knowledge and wider ranging services which are afforded by a leading global insurance manager.”
The Isle of Man pure captive owned by National Grid plc has had its financial strength rating affirmed ‘A-‘ (Excellent) and its long-term issuer credit rating affirmed as “a-” (Excellent).
National Grid Insurance Company (Isle of Man) Limited provides a broad range of coverage to its parent including for property damage business interruption (PDBI), casualty and cyber.
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Despite “significant losses on its PDBI book in financial years 2021 and 2022”, AM Best said the captive had a healthy five-year (2020-2024) weighted average combined ratio of 75%.
“Prospectively, AM Best expects the captive’s underwriting performance to be favourable over the longer term, albeit subject to potential volatility given its high net line sizes relative to its premium base,” the ratings agency said.
AM Best stated that the captive’s balance sheet is “very strong” with the ratings also reflecting its adequate operating performance, neutral business profile and appropriate enterprise risk management.
While McGill & Partners is focused on broking for large, complex accounts, the prospect of a UK captive regime and further progress at Lloyd’s could tempt the firm into offering captive management services domestically, according to Stephen Cross, group COO & head of innovation & strategy.
Cross was speaking in an exclusive interview on the Global Captive Podcast regarding the scale of McGill’s ambitions in the captive sector, and whether entering captive management is part of the plan.
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To date, the broker has had success on the reinsurance broking side for large captives, but Cross has extensive experience, from his time at Aon and International Risk Management Group (IRMG), in captive management and broader captive services.
Speaking on GCP #106, he said captives “is a business that I love,” but explained that to have a serious captive management offering you really need to be in multiple domiciles around the world, which makes it much harder for new entrants.
“Building out a captive management business, in reality, for the large global corporate sector would require you to have a presence onshore United States, probably Vermont at a minimum, Bermuda as the original home of all captives, possibly Cayman for medical malpractice,” Cross said.
“You certainly need at least one or two locations in Europe, maybe something in Asia. So that’s quite a lift for us to do. As I say, we’re just over 500 people right now.
“It’s quite a lift and there’s not a lot of managers left to buy, so buying our way into that space would be a little bit more challenging.”
“I do think that what Lloyd’s is proposing is quite fascinating and we do obviously a lot of business with Lloyd’s,” he said.
Captive Intelligence reported in June the first Captive Syndicate had been launched at Lloyd’s, managed by Apollo Syndicate Management Ltd with additional captive consulting and support provided by Marsh.
“I do think for London and for what Lloyd’s has to offer, there’s a definite opportunity there,” Cross added.
“I’d probably give you a ‘maybe’ for McGill & Partners there for sure. It would be interesting to us.”
As to whether every large broker should be abe to offer captive management services, he said he did not believe it was an imperative and praised the options already available from broker-owned managers and independents.
“I don’t think any broker needs to have a captive management presence, I really don’t,” Cross said.
“I look at SRS, and I look at a number of other independent managers, and they’re superb at what they do.
“Then I think about the broker-owned managers, again, they do a great job and they can bring a lot more elements to that management if they choose to.”
The Federation of European Risk Management Associations (FERMA) is hopeful there will be more regulatory consistency between EU captive domiciles once Solvency II reform is implemented, but questions remain over implementation.
Captive Intelligence reported in April the European Parliament had passed proposed Solvency II reforms that introduced regulatory concessions for “small and non-complex undertakings”, which the majority of captive (re)insurers are expected to fall into.
Speaking on the latest episode of the Global Captive Podcast, FERMA’s head of EU affairs Charles Low and Laurent Nihoul, head of the Federation’s captive committee, explained the background and journey of the reforms and their hopes for its tangible benefits.
Low explained that while the original Solvency II regulation “explicitly defined” captives in Article 13 of the Directive, and instructed national supervisors to apply requirements according to the nature, size, and complexity of the regulated entity, this was not always the case.
“What was experienced by FERMA, its members and others, was that in some cases, captives were treated in the same way, prudentially, as basically large insurers,” he said.
“And that’s stretching it out to the point that captives, conceptually, were kind of unfamiliar territory to many regulators.”
Nihoul explained that there have been inconsistencies between even established captive domiciles as to how Solvency II had been applied.
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“What we have experienced since the introduction of Solvency II is that proportionality was not really applied in a consistent way, depending on the country,” Nihoul said.
“In Ireland, for instance, with the Own Risk Solvency Assessment (ORSA) or in Luxembourg for quarterly reporting, the criteria were not really consistent. It was really left to the member states to define what was really proportionality and how it should be applied.”
Nihoul added that he hoped that the introduction of “small and non-complex undertakings” would bring “much more clarity and consistency across member states”.
“Now we have a clear principle, which we believe will bring more consistency across the different countries in Europe and more predictability,” he added.
“The predictability principle is really crucial because we have now in the new text a list of clear criteria, with which any insurance or reinsurance company should comply with to be considered as a small and non-complex entity.
“Even more importantly, there is now a derogation for captives because the texts say that captive companies can be classified as small and non-complex entities even though they do not comply with all these criteria, provided that they comply with a couple of other criteria.”
With the Solvency II reforms passed, the next big question and focus for the European market is implementation.
It is anticipated that supervisory authorities will begin implementing the changes from 2026, but member states will need guidance from EIOPA on the next steps.
“All of the various 27 member states in the EU are then charged with putting that EU directive into their own national law and then determining on how they will implement it within the constructs of their national legal systems,” Low said.
“There invariably will probably be some questions, some patches of uncertainty and so forth. So the implementation part is going to be a big open question.”
Listen to the full podcast discussion with FERMA’s Charles Low and Laurent Nihoul on GCP #107 here, or on any podcast platform. Just search for ‘Global Captive Podcast’.
Artex has established a Vermont protected cell company (PCC), Artex Axcell PCC (Vermont), Inc, to provide organisations of all sizes an alternative platform for risk transfer.
Vermont has become increasingly popular as a jurisdiction for cell business in recent years, with 39 individual cells approved in the State during 2023 and its year-end number of protected and incorporated cells totaling 534.
Artex said its new PCC will facilitate protected and incorporated cells.
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“PCCs have been one of the most important evolutions in the captive insurance marketplace in recent years, and we are thrilled to serve clients through our latest Artex Axcell PCC,” said Jennifer Gallagher, CEO of Artex, North America.
Barry White, executive vice president for sales, analytics and advisory for Artex, North America, said: “With Vermont now established as the largest captive domicile globally, we selected Vermont as part of our U.S. onshore strategy but also to complement our global offering.”
Artex said utilisation of the PCC gives clients the flexibility to begin a captive strategy before potentially growing into a single parent captive, while it can also provide access to the reinsurance market and capital markets and provide cash flow benefits.
Artex already owns cell company facilities under its Axcell brand in multiple domiciles including Guernsey, Bermuda and Cayman.
Patty Cosman, Managing Director of Real Estate, Hylant.
Ian Podmore, Director of Global Captive Consulting, Hylant.
Claire Richardson, Captive Consultant, Hylant.
According to the Council of Insurance Agents & Brokers, commercial property premiums jumped 10.1% in first-quarter 2024, representing the 26th consecutive quarter of increases.
While premiums for the commercial market have generally begun to stabilize, multifamily projects will continue to be hammered with hefty increases for the foreseeable future.
Commercial property owners and investors are eagerly seeking ways to reduce their insurance spend while obtaining adequate coverage to protect their assets and comply with lender covenants. That has led many to explore the concept of establishing a captive insurance company.
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Captives allow commercial real estate owners to enhance protection, increase their self-insurance opportunities and customize their insurance coverage. In addition, they can benefit from underwriting profits that would normally go to their insurance carrier, further reducing their overall spend.
While captives are seeing growing acceptance for many coverages across numerous industries, the extraordinarily varied nature of real estate-specific risk makes captive evaluation increasingly nuanced.
Economic viability
The nature of captives generally makes them less feasible for organizations with less than $5 million in annual premium volume. While that may seem steep or unfair, it’s all about basic economic viability.
A captive needs to be sustainable from a loss perspective. With property risk, claims are considered “short tail” and thereby pay out more quickly, requiring sufficient premium volume to sustain the captive’s efficacy.
It is not unusual for an organization facing steep premiums to assume the captive strategy is the right answer, but moving to a captive isn’t like simply flipping a switch. The process involves the organization’s overall business strategy, financial strength and leadership’s appetite for risk.
An organization moving to a captive will be assuming a significantly larger share of financial risk. If a $50,000 deductible terrifies a CFO, they’re likely to be more alarmed by a captive in which they’re directly liable for half a million dollars or more.
Structuring a captive around any organization’s current situation is less viable than building it around foreseeable strategic goals. If real estate investors expect their portfolio to grow significantly, plan to divest a substantial chunk or shift into a new market or sector, their captive needs to reflect and accommodate those plans.
One of the most significant issues in the real estate arena involves the growing potential for catastrophic claims. If your portfolio includes properties in areas prone to flooding, wildfires or massive storms, your fast-growing premiums reflect insurance payouts for previous catastrophic events.
While some owners assume that refers only to coastal locations such as Florida and California, even inland states like Michigan are experiencing more large-scale wind-damage events.
Owners may be willing to assume the risk for catastrophic risks, but that doesn’t mean a carrier is going to share their enthusiasm for covering specific properties. Experienced captive consultants know which carriers are willing to find mutually agreeable solutions, even if that means stepping away from the captive approach.
Captive consultants can perform optimization studies that provide realistic projections for losses, informing recommendations for the most cost-effective way to structure the program. They can help real estate owners determine the optimal level of deductible based upon the expected rate of return on funds invested in the captive.
For example, suppose a portfolio has a low frequency of losses and the owners choose to assume and fund a million-dollar deductible. Based upon their expected rate of return, they’ll end up in a better financial position in five years than they would have had they chosen a lower deductible with a higher loss frequency.
Optimization studies can also consider the impact of structuring deductibles in a series of tiers. In addition to an overall deductible, there may be separate deductibles for earthquakes, flooding and so forth.
Rating and compliance considerations
One of the biggest obstacles to forming real estate captives involves meeting the requirements of third parties such as lenders. Loan documents often require specific coverage amounts and deductibles, while captives are typically designed to pair with high deductibles in the early years of operations.
Another common covenant involves the requirement that property be covered by a company with an A.M. Best rating, which provides a hurdle, as captives are not rated. Additionally, some commercial tenants have their own requirements for coverage. As an example, one major retailer requires at maximum a $250,000 general liability deductible with an A-minus or better rated carrier.
Captive professionals are familiar with multiple structures for addressing issues like these, whether it involves a comparatively simple indemnity agreement, structuring a captive in a fronted reinsurance program or renegotiating complex leases to allow a captive’s higher deductible.
One common risk transfer strategy when faced with a deductible restriction involves fronting, in which an insurance carrier will write a policy and cede most or all of the risks to a reinsurer, in this case a captive.
The carrier becomes known as the fronting company, receiving an agreed-upon percentage of the policy’s premium and paying out losses in accordance with the shared percentage. The downside of fronting is that it does include paying additional fees.
Another strategy some property owners use is developing a renter’s insurance program through which their lessees purchase insurance through the captive. The property owner earns premium income which helps to fund the captive, as few tenant claims are large.
Pursuing a captive is a change in business strategy that demands examining and funding risks in different ways. That’s why it’s important to consider your organization’s strategic goals, whether that includes growing, acquiring or divesting your property portfolio.
If an owner of multifamily developments currently owns 2,000 units but expects to grow to 8,000 in the next five years, their captive may need to be structured around that future level instead of today’s holdings. That may make the captive less attractive in the short term, but as the owner moves closer to that growth goal, the benefits of the strategy will become increasingly evident.
Captives are intricate structures, requiring professional planning, forecasting and advice to achieve long-term success. Choosing an experienced captive advisor or manager gives investors and other owners access to knowledge about captive types, ownership and program structure, service provider guidance and working relationships with carriers and other key players.
By operating as a managing general underwriter, SRS Altitude can access a larger pool of capacity and risk appetite compared to competitors that only have access to the appetite of a single carrier, Thomas Keist, chief commercial officer at SRS Altitude, told Captive Intelligence.
SRS announced the launch of SRS Altitude in November, with the MGU focusing on alternative risk transfer solutions, led by Loredana Mazzoleni Neglén as global CEO.
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Captive Intelligence understands SRS will confirm the A-rated carriers it will be partnering with imminently.
Altitude began operating in the first quarter of 2024 with structured (re)insurance and parametric products at the centre of its offering.
It is focused on tailoring underwriting solutions to match clients’ needs when they cannot be appropriately addressed with conventional insurance.
“What differentiates Altitude in the market is that as an MGU we have more independence from the risk appetite and capabilities of a single (re)insurance carrier by being able to partner with multiple strategic carriers to enable higher agility and variety of risk appetite,” he said.
Keist said an MGU can act like a platform where various (re)insurance carriers who do not have the organisational possibilities or willingness to set up specialised teams can still access this business and integrate it as part of their offering to clients.
He added the decision to launch an MGU rather than exploring going into broking was made because this would have potentially jeopardised one of SRS’ key value propositions, which is independence, “and therefore access to business from brokers who are not part of the big three”.
“This independence is a key piece,” he said. “SRS Altitude is a more complementary addition because it’s different to the core service, but at the same time, it adds an important offering to captive clients.”
Young previously told Captive Intelligence that there’s a ‘’vacuum of expertise’’ in the market, so it made sense to fill that vacuum for clients with the launch of Altitude.
“More and more of our clients are facing risks that the standard insurance market cannot solve and there’s certain things we can do with a captive and partnering with carriers that have an appetite for these highly structured programmes seems to make sense,” he said.
Keist noted that there has been structural growth in the alternative risk transfer market since the beginning of the hard market.
“It’s not like we have just had a hard market and now there’s alternative risk transfer,” he said.
“The whole change is more structural because many of the corporates who have come into the hard market have started to realise that a different retention management will be much more sustainable for the longer term, and forming a captive to manage a corporate’s retention is a prime option to go for.”
The Indian government is preparing once again to introduce a captive framework to its insurance legislation, according to multiple reports in the country’s media.
Proposed captive regulations were anticipated in 2022 and 2023, but amendments to India’s Insurance Act, 1938 did not materialise or progress.
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The Economic Times, and other Indian media outlets, are now reporting a bill amending the Act will be introduced as part of the government’s Budget session and will include the issuance of captive licences, as well as the introduction of a composite licence so insurers can write life and non-life risks in the same entity, and a change in capital and solvency regulations.
The broader amendments are designed to meet the governments target of ‘Insurance for All by 2047’, and will also include measures to support the development of micro insurance.
The introduction of domestic regulation is thought to be imperative for the Indian corporate community to embrace and utilise captive insurance structures, because it is currently difficult to pay premium to internationally-domiciled captives.
Considering some large captive managers and brokers already outsource some back office work to India, it may be fairly straightforward to build local expertise and leadership should an Indian captive domicile materialise.
