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Captive backed tenant programme delivering market leading product for Extra Space

Richard Cutcher
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Captive backed tenant programme delivering market leading product for Extra Space

Implementing a tenant programme that is run by the group’s captive, rather than provided by the commercial market, has been key in providing Extra Space more control over their own product and serve customers better.

Extra Space Storage is a publicly listed real estate investment trust that has 3,700 storage properties across 42 states. This amounts to 2.5 million storage units and 283 million rentable square feet.

Speaking on the Global Captive Podcast Kacey Kalian, VP of risk management at Extra Space, said the company previously used a third party product to provide tenant insurance to its customers with Extra Space taking a “small cut” of the premium.

In the mid-2000s the company was growing quickly and wanted to take more control over the insurance it offered to its customers.

“We wanted to control the process and make sure we were creating something that was really unique and beneficial for our tenants,” Kalian said.

Jason Flaxbeard, executive managing director for alternative risk at Brown & Brown, has been a long-time consultant to Extra Space on its captive and said while control is the ultimate objective, ensuring your compliant in offering a customer product is key.

“You’re selling a product to an individual member of the public, so we have to be compliant from a licensing perspective,” Flaxbeard said on the podcast.

“We have to offer an A-rated product and we have to ensure that Extra Space’s interests are aligned with the customer’s interest on the backend. The captive allows us to do that because we are the ultimate risk taker on any one of those programmes or for any individual.”

Today Extra Space uses a fronting partner and reinsures 100% of the tenant risk.

“It’s in our own best interest to make sure that we invest in good loss control practices, that our tenants’ goods are always safe and protected because ultimately we are paying out 100% of those claims,” Kalian added.

“It hits our bottom line. If we have a big hurricane or if we have a big fire, that’s money that’s coming directly out of our pockets via the captive.”

Bobby Mayer, vice president at Brown & Brown, specialises in tenant insurance programmes and works closely with Extra Space on their structure.

“With traditional insurance you’re really just worried about one person, but with this type of product there’s two groups you have to consider – the landlord and the tenant,” Mayer said.

“What we try and do and what I think the trick is to these programmees is design something where everyone wins.

“It’s easy to use for the tenant, it’s good for Extra Space because it encourages good behaviours and generates a revenue for them. And the captive becomes that tool that allows you to control that and really deliver on it.”

Kalian said they have been able to expand and tailor the coverage as the environment changes or different challenges emerge.

For example, Extra Space has been able to add flood and pest coverage to its list of perils and Kalian believes today they “probably have the most comprehensive insurance programme of any self-storage company”.

“It has no deductible and it’s just relatively cheap in terms of costs so the majority of our tenants do decide to take that product,” he added.

“If you think about filing a claim with your homeowner’s insurance company, any time you do that your rates are going to go up and there’s usually a large deductible associated with it.

“We’ve created something that is unique and also affordable and very easy to use. It’s very easy to file a claim. And from a customer service perspective, it just provides a great product for in the unfortunate circumstance that someone might have an issue at one of our properties.”

Listen to the full 23-minute Global Captive Podcast discussion about Extra Space’s captive insurance strategy here on Captive Intelligence or any podcast app. Just search for ‘Global Captive Podcast’.

Non-profits and charities look to captives to negate rising costs

Luke Harrison
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Non-profits and charities look to captives to negate rising costs
  • Tough commercial market for not-for-profits and public entities
  • Captive frequently used to fill growing gaps in coverage and raise capacity
  • Emerging risks and liability insurance a particular challenge
  • Internal and stakeholder buy-in can be slower than in the private market

Public entities, non-for-profits, and charities have long been common utilisers of captive insurance structures, but they are increasingly looking towards captives as a means of addressing emerging risks, stifling rising costs and mitigating a lack of capacity in the commercial market.

A common challenge faced by a number of these organisations when utilising captives is the capital requirements needed to fund the formations.

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Captive Intelligence provides high-value information, industry analysis, exclusive interviews and business intelligence tools to professionals in the captive insurance market.

AM Best assigns rating to DSLD Homes captive

Luke Harrison
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AM Best has assigned a financial strength rating of B++ (Good) and a long-term issuer credit rating of “bbb” (Good) to South Carolina-domiciled Quasar Insurance Company. The outlook assigned for the ratings is stable.

Quansar is a single parent captive formed to provide liability insurance to its sister affiliate, DSLD Homes, and its other affiliated companies.

The captive offers nine different coverages, with general liability and subcontractor default consisting of approximately 80% of the business.

DSLD is a large, privately held home builder that specialises in residential construction throughout Louisiana, Southern Mississippi, Alabama, Florida and Texas.

The captive is managed by a third-party captive manager in collaboration with the senior management team.

Risk management of the captive falls under the scope of the parent, which has implemented an active risk management approach.

Management evaluates top risks and mitigates severity through active risk management.

Best practices include stringent construction processes, annual insurance reviews and bi-monthly, in-person senior management meetings to discuss current and emerging issues.

AM Best said the captive does not currently utilise reinsurance partially offsetting the positive factors above.

The ratings reflect Quasar’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Quasar’s overall balance sheet strength assessment is supported by its strong level of risk-adjusted capitalisation, as measured by AM Best’s capital adequacy ratio (BCAR), as well as a conservative investment portfolio and adequate reserves and liquidity.

This assessment is partially offset by no use of reinsurance to protect surplus in the event of natural catastrophes and the high limit offering relative to the captive’s surplus.

Quasar’s adequate operating performance is primarily based on audited results over the most recent five-year period, and the company’s ability to execute its strategic business plan and meet forecast operating results.

The captive has reported strong results in recent years, primarily driven by underwriting and investment income, supporting the company’s surplus growth.

The captive’s results are forecast to remain adequate over the next five years with projecting overall earnings in all years.

Government Entities Mutual premium triples over last five years

Luke Harrison
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Government Entities Mutual premium triples over last five years

The premiums received by Washington DC-domiciled Government Entities Mutual (GEM) have tripled over the past five years as government bodies counter rising costs and a lack of capacity brought about by the hard market, according to Andrew Halsall, president and CEO at GEM.

GEM is a mutual reinsurer consisting of risk pools or captive insurers comprised of public entities in the United States.

The mutual offers workers’ compensation reinsurance, where it provides a buffer layer of up to $2m between the retention of each pool and where the excess insurer attaches.

GEM also offers general and auto liability coverage, providing to $10m worth of cover.

“We then buy retrocessional reinsurance mainly from the London markets,” Halsall told Captive Intelligence. “We have several Lloyd’s syndicates on the panel and a couple of corporate reinsurers.”

Halsall said during the hard market members experienced a reduction in capacity from their incumbent reinsurers and prices skyrocketed.

“GEM was able to step into that void and provide more coverage and stability in pricing to existing members,” he said. “We also added five new members.”

“As a result, over the last five or so years we have more than tripled our premium income and grown our surplus significantly.”

Halsall said growth has also presented a certain amount of risk for the mutual.

“Especially if there’s a temptation to open the floodgates and accept all comers,” he said. “We have a cautious approach to growth.”

All members of GEM each represent multiple underlying government entities.

“The risk is already diversified by the stage that it reaches us,” Halsall said. “We don’t take on individual entities like large cities as members.”

“They represent a concentration of risk that would undermine our portfolio. In any case, large cities generally self-insure and buy excess insurance.”

Halsall said there were several reasons Washington DC was chosen at GEM’s captive domicile.

“First of all, there is an implied neutrality so if we’re attracting members from different states, we don’t necessarily want GEM to be already domiciled in a State which may imply some kind of bias toward that member,” he said.

“The DC regulators have also been very reasonable to deal with. They have very high standards, but they are also very approachable.”

GCP Short: The Extra Space Storage captive evolution

Richard Cutcher
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GCP Short: The Extra Space Storage captive evolution
Kacey Kalian, Extra Space
Jason Flaxbeard, Brown & Brown
Bobby Mayer, Brown & Brown

This GCP Short, produced in partnership with Brown & Brown, looks in depth at the evolution and growth of the pure captive owned by ExtraSpace Storage.

Extra Space is a publicy listed real estate investment trust that invests in and manages self storage facilities and has grown incredibly quickly in recent years, as you will hear.

While at RISKWORLD in San Diego earlier this month, Richard sat down with Kacey Kalian, VP of risk management at ExtraSpace, alongside his captive managers and consultants Jason Flaxbeard and Bobby Mayer, of Brown & Brown.

Kacey shared the journey of ExtraSpace, both as a business and captive owner, and explained how the captive strategy has been a key business enabler and profit maker in its own right for the company.

The trio also discuss, in depth, how its tenant insurance programme works and some keys to success.

For more information on Brown & Brown and its captive management and consulting services, visit its Friend of the Podcast page.

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

Solvency II reform no “revolution” but greater proportionality welcomed

Luke Harrison
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Solvency II reform no “revolution” but greater proportionality welcomed
  • Greater regulatory proportionality expected across EU member states
  • Lighter touch approach to ORSA and SFCR reporting requirements
  • Reforms could encourage more formations within the European Union
  • Welcome exemption from climate change reporting

There is hope that Solvency II amendments will allow for greater proportionality in the regulation of captives domiciled within the European Union (EU), but the proposals stop short of giving captives their own classification.

Since 2016 insurers and reinsurers, including captives, have been governed by the EU Solvency II Directive.

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Captive Intelligence provides high-value information, industry analysis, exclusive interviews and business intelligence tools to professionals in the captive insurance market.

Early UK election expected to delay domestic captive regime

Richard Cutcher
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Early UK election expected to delay domestic captive regime

News that UK Prime Minister Rishi Sunak is calling an early general election could delay progress on the introduction of captive regime in the United Kingdom.

Conversative PM Sunak announced this afternoon that an election will be held on 4 July, with the Labour Party holding a significant lead in the polls and expected to get the keys to 10 Downing Street.

Captive Intelligence has reported extensively over the past 12 months on the prospect of a new regulatory framework for captives in London, with the current Conservative government committing to a consultation this spring.

That consultation has yet to be published, but the London Market Group had successfully lobbied Treasury and MPs interested in financial services and the insurance market to get it on the agenda.

Primary legislation should not be needed to amend the insurance rules that would introduce a regulatory framework tailored to captives, but any changes would require a pro-active approach from the government of the day.

While the Conservatives had committed to pressing ahead with the project, Captive Intelligence understands Labour does not have it as a priority to pursue should they enter government.

Labour’s shadow treasury team have, however, been briefed on the feasibility and benefits of having a captive insurance regime and the London Market Group remains committed to the project.

“Our data shows that London is the leading risk transfer market in the world,” Caroline Wagstaff, CEO of the London Market Group, said.

“We very much hope the next government helps us to capitalise on that by ensuring that we can offer clients all the tools in the tool kit and rapidly progressing a UK captive regime. It is a quick win for demonstrating a commitment to growth and competitiveness and would make an important contribution to the UK economy.”

The prospect of a UK captive regime was discussed in depth by LMG CEO Caroline Wagstaff and Aon’s Charles Winter in episode 94 of the Global Captive Podcast, while Chris Lay, CEO of Marsh McLennan UK, co-authored an article in January explaining why the broker was supporting the initiative.

Lay also featured in a GCP episode with Marsh colleagues William Thomas-Ferrand and Matthew Latham debating what would make a successful UK captive domicile.

Captive Resources confirm leadership additions, Steven Gransbury to lead Health Solutions

Richard Cutcher
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Captive Resources confirm leadership additions, Steven Gransbury to lead Health Solutions

Group captive experts Captive Resources, LLC (CRI) has announced the creation of two business units and confirmed additions to its executive committee.

The group captive consultants has experienced significant growth in medical stop loss in the past five years.

As a result, it has now created two separate business units – Property & Casualty (P&C) and Health Solutions.

Steven Gransbury, previously head of specialty at QBE North America, has been appointed president of Health Solutions, while JP Boulus is president of P&C.

Donna Dreuth is now chief financial officer and chief administrative officer, while John Pontin is chief growth officer.

Boulus, Dreuth and Pontin are part of the executive committee also including co-CEOs Nick Hentges and Mike Foley.

CRI has also appointed Mark Knipfer, previously chief operations officer at Zurich North America, as its chief strategy officer, and Terry McCafferty, formerly president and CEO of Falls Lake National Insurance Company at James River Holdings, as its chief underwriting officer for P&C.

“I am very excited about the recent changes and additions to our leadership team,” said CEO Nick Hentges.

“These changes position Captive Resources for the continuing robust growth we’re seeing in both our Property & Casualty and Health Solutions businesses.

“We spend a great deal of time thinking strategically about the future and ensuring we have a management team that will continue moving Captive Resources forward.”

CRI also has two subsidiaries – Kensington Management Group, LLC, a full service captive management firm led by its president Erin Brosnihan, and Edgewater Actuarial Insights, LLC, led by president Bob Effinger.

“The key to our success is providing outstanding service to our clients and their brokers,” Hentges added.

“Building our management team and remaining focused on hiring the very best talent is critical to giving our clients the exceptional captive experience that has become a hallmark of our company.”

Governor Scott signs latest Vermont captive bill into law

Luke Harrison
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Governor Scott signs latest Vermont captive bill into law

Governor Phil Scott has signed Bill H.659 into law making several changes to the Vermont captive insurance statute.

Each year the Vermont Captive Insurance Association (VCIA) works with the Vermont Department of Financial Regulation (DFR) to propose updates to captive insurance statutes based on industry feedback.

“Vermont has a strong foundation of regulators and service providers who work together to ensure our state is as supportive as possible for Vermont’s captive insurance companies,” said Governor Scott.

“The passage of the yearly captive bill is always an important action to further improve the quality of our regulation.”

Highlights of this year’s bill include adding explicit language allowing for conversions of captives into protected cells, amending language for parametric contracts to allow for different parametric contract structures, while statutory redundancies were addressed pertaining to confidentiality requirements. 

There has also been an amendment reducing the minimum capital for an agency captive from $500,000 to $250,000.

A lower minimum capital requirement is expected to compare more consistently with the captive market, without lowering expectations of captive insurance companies. 

While the Bill had been sitting on the Governor’s desk awaiting his signature, Captive Intelligence published a long read exploring the Bill in detail and what the amendments could mean for the Vermont captive landscape.

“This process is essential for Vermont to proactively address inefficiencies in its statutes without compromising on quality regulation,” said Brittany Nevins, captive insurance economic development director at the Vermont Department of Economic Development.

“This annual process ensures that Vermont is continuing to regulate captive insurance companies as best as possible.”

Title reinsurance an opportunity to expand captive utilisation in United States

Luke Harrison
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Title reinsurance an opportunity to expand captive utilisation in United States

Reinsuring title insurance is an opportunity for captive owners to expand utilisation and profit from a new line of insurance, according to Clinton Casabella, a title reinsurance expert in the United States, and SVP of business development at Grid151.

Casabella works with Westcor Specialty to sell title insurance to corporates and is now also working with captive owners to help them implement their own title reinsurance programmes.

When a real estate transaction happens, a set of documents, such as a deed and a mortgage are signed by either the buyer, the seller, or both, and those documents are then placed on public record.

“Those recorded documents are indexed and catalogued to a particular property, so when reviewed in reverse chronological order, become what’s known as the ‘chain of title,’” Casabella said, speaking on episode #103 of the Global Captive Podcast.

The job of title insurance professionals is to search the public record, examine that chain of ownership over time and ensure that it is unbroken and without defect.

“Title insurance is, therefore, a type of indemnity insurance, which insures against financial loss from defects in the chain of title to real property and from the unenforceability of mortgages and other liens,” Casabella said.

“With most insurance, a client is paying a recurring premium to cover against something that might happen in the future, whereas with title insurance a premium is paid to cover for anything that may have happened in the past, which could threaten the ownership of the property that you’re purchasing or lending on.”

Casabella said title insurance would be of interest for captive owners who buy or sell real estate frequently, in addition to those who do real estate financing, as well as other players in the real estate market.

“This is an opportunity for captive owners to expand the utilisation of their captive by reinsuring a new class of business and reaping the same advantages and benefits that they’ve experienced in reinsuring the more established traditional risks,” he said.

Casabella said that compared to other lines title insurance loss rate ratios are relatively low at less than 5%.

He said Westcor’s current captive programme works on a quota share basis, with the company working with partners to do preliminary work specific to a client’s book of business.

“We’ll look at their book of business and estimate the amount of premium running through the programme in the first year, and work with actuaries on expected claims, losses, and then we’ll use that to generate the required upfront collateral and so on,” Casabella added

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