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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.
Mauritius has right structures in place to be frequently chosen domicile
Mauritius has all the right infrastructure in place to be an increasingly popular captive jurisdiction, according to Kaviraj Nuckchedee, director and head of captive insurance at Fortree Management Services.
The popularity of captives in Mauritius continues to rise as companies look to negate rising costs in the hard commercial market, while recent changes regarding third party risk means pure captives can be used for a greater variety of business cases.
“Mauritius is well grounded in the insurance industry and has the right structures in place to be chosen as a captive jurisdiction for potential captive owners,” Nuckchedee told Captive Intelligence.
He added when it comes to effective captive insurance structuring, including its set up and ongoing management, captive experience and the right insurance partners are key factors that companies should consider.
“Fortree Management Services has both,” he said. “The firm has the island’s best-known capabilities for running pure captive insurance structures.”
He highlighted that less than 1% of all captives worldwide are domiciled in Africa.
“This is where Mauritius now comes into play to provide the right platform and legal framework to businesses in the region as well globally, for an effective and efficient risk management,” Nuckchedee said.
“Other players on the island, be it auditors, bankers, law firms, actuaries, and reinsurance brokers, are well versed with captive insurance businesses and ready to provide the relevant assistance and support.”
Captive Intelligence recently published a long read highlighting that Mauritius is keen to enhance its reputation as a global financial hub and continue captive expansion in the domicile.
Phil Giles joins ClearPoint Health as chief growth officer
South Carolina-based ClearPoint Health has appointed Phil Giles as chief growth officer, starting 6 May, 2024.
The company develops and scales clinically integrated captives, including clinical providers in the sponsorship of medical stop loss captives.
In his role as chief growth officer, Giles is tasked with leading ClearPoint Health’s enterprise sales organisation.
Giles has joined ClearPoint from MSL Captive Solutions where he was managing director.
“Phil’s unparalleled expertise and strategic foresight in alternative risk and captive insurance are exactly what ClearPoint needs as we embark on this next phase of growth,” said Jeb Dunkelberger, CEO of ClearPoint Health.
“His profound alignment with our mission and vision promises to significantly propel our efforts to innovate within the alternative risk industry, ultimately benefiting a broad spectrum of employers with both standard and highly customized insurance solutions.”
In December, ClearPoint Health partnered with direct healthcare company, Nomi Health to help small and mid-sized employers across the US take better control of their health insurance costs.
In October, Dunkelberger told Captive Intelligence that there is no end in sight when it comes to current US health insurance challenges, with SMEs disproportionally being impacted.
“Joining ClearPoint Health marks a significant milestone in my career, deeply aligned with my passion for seeking out innovative and impactful opportunities within the sector,” Giles said.
“I am eagerly anticipating leading the growth initiatives at ClearPoint, contributing to the transformation of employer health insurance, and driving our collective mission forward.
“This opportunity to make a substantial difference, in alignment with ClearPoint’s forward-thinking ethos and commitment to excellence, is incredibly exciting.”
Alliant acquires Property Owners Protection Insurance Company
Alliant Insurance Services has acquired California-based Property Owners Protection Insurance Company (POPIC), a national captive services company focused on multifamily and single-family residential portfolios. The terms of acquisition have not been disclosed.
POPIC provides a range of services to clients that includes structuring captives, managing programmes, and administering tenant compliance.
“The POPIC team has differentiated itself in the marketplace by combining strong institutional knowledge with a highly creative and results-driven approach,” said Bill Mecklenburg, senior managing director at Alliant Underwriting Solutions (AUS).
“This will enable AUS to further diversify our services and expand our reach in residential real estate program administration.”
The POPIC team will join Alliant as part of the AUS division.
Noah Molnar, CEO of POPIC, said that joining forces with Alliant will provide his team with expanded capacity and a “deep well” of resources.
In April last year, Alliant Insurance Services launched Alliant Re, a reinsurance brokerage division, which will include offering captive reinsurance solutions.
In June, Seth Madnick, managing director of the captive group at Alliant Insurance Services, told Captive Intelligence that the company had seen exceptional growth within its captive division over the past 18 months.
GCP Short: Captive utilisation by Family Offices
This GCP Short, produced in partnership with the EY Global Captive Network and hosted Richard Cutcher, focuses on captive utilisation by Family Offices.
Mikhail Raybshteyn, partner and co-leader of EY Captive Insurance Services (Americas), and Prabal Lakhanpal, senior vice president at Spring Consulting Group, share their insight into the world of family offices, their unique insurance needs and challenges and where we could expect to see a greater utilisation of captives in this space in the future.
For more information on the EY Global Captive Network, visit their Friend of the Podcast page.
For the latest news, analysis and thought leadership on the global captive insurance market, visit Captive Intelligence and sign up to our twice-weekly newsletter.
Captive manager RMC Group wins 831(b) promoter case against the IRS
Captive management company RMC Group and its president and CEO, Raymond Ankner, have won an important case against the Internal Revenue Service in the United States, with the assistance of law firm, ZMF Law.
In the RMC case, the jury concluded that the IRS failed to show that the captive manager was liable for Internal Revenue Code Section 6700 penalties.
Section 6700 applies to any person who organises or assists in organising “any investment plan or arrangement”, or “any other plan or arrangement”.
Such a plan is satisfied simply by ‘selling an illegal method by which to avoid paying taxes’.
The IRS had argued that “Ankner and his companies designed, sold, and managed a plan to avoid federal income taxes through unlawful deductions for supposed ‘insurance premiums’ in connection with micro-captive insurance programs.”
During the case, various witnesses testified in depositions that Ankner’s captive management services were not a “plan or arrangement” within the meaning of Section 6700 because the offered services to help unrelated clients form and manage captives was not a unitary programme.
After more than a decade disputing the issue, ZMF Law said the taxpayer was determined to owe no penalties and will receive a refund of penalties previously paid.
ZMF Law said the victory in the US District Court for the Middle District of Florida is the first of its kind for captives and represents a significant victory for both the captive industry and taxpayers.
“This is a big win for the industry,” said Matthew Reddington, a partner at ZMF Law.
“The case supports the sentiment of much of the small captive insurance industry, where there is concern that the lack of adequate guidance has made it difficult to anticipate what the IRS has now decided are the rules.”
The IRS has a history of going after micro captives – ie. those making the 831(b) election – directly in the Tax Court, winning its most recent case at the end of last month against Dr. Patel, the co-founder of an eye surgery centre and the founder of two research centres in the West Texas area.
Data recently seen by Captive Intelligence indicates that of the approximately 80 831(b) cases concluded in the US Tax Courts since 2014, no deficiencies were found in 25 of those.
Of the over 1,100 cases lodged in the US Tax Courts since 2014 for alleged unlawful 831(b) transactions, over 990 cases are still pending hearing.
The rise of captives in the Middle East: Demand reaches new heights
The Middle East has experienced rapid economic growth and diversification across various sectors, including energy, construction, finance, and healthcare. As companies expand their operations and face more complex risks, captives start to play an increasingly important role in their risk management strategies.
Governments in the Middle East have recognised the importance of captives in supporting economic growth and attracting foreign investment. As a result, they have introduced favourable regulations and frameworks to encourage the establishment of captives.
These regulations provide companies with the necessary legal and regulatory framework to set up and operate captives in a transparent and efficient manner.
Opening the door to captives
There are currently three countries in the Middle East that have specific captive regulations: the United Arab Emirates (UAE), Qatar, and Bahrain.
In the UAE, there are two financial free zones with captive insurance regimes — the Dubai International Financial Centre (DIFC) established in 2004 and the Abu Dhabi Global Market (ADGM) established in 2015.
Regulators in both free zones have introduced captive regulations of the highest standard, in line with well-established captive insurance domiciles, including Bermuda, Guernsey, Cayman Islands, and the Isle of Man. Currently, the UAE is the largest domicile in the Middle East.
These regulators are constantly seeking ways to improve the environment for captive insurers. For example, in the DIFC, the Dubai Financial Services Authority (DFSA) has approved a revised solvency regime for captives that is more proportionate to their business model and risk profile. This regime came into force in 2021.
Qatar, through the Qatar Financial Centre established in 2005, aims to establish the country as a thriving captive insurance hub, while Bahrain has been a destination for captives for years.
There has been positive dialogue between the captive owners and regulators in these locations. And for companies with captives in their home country, it has often been easier to operate according to the regulations of one country, rather than two.
Saudi Arabia has been contemplating captive legislation recently. The possibility that foreign captives could be redomiciled back home is an important consideration. For Marsh clients in the country, captives are becoming more important for the evolving risks they are facing.
Bassam Albader, CEO of Marsh Saudi Arabia, supports the use of captives as an innovative and necessary option for clients’ risk management needs.
“Captives are becoming an important part of successful risk financing, especially for evolving risks,” he said.
“It would be advantageous to Saudi Arabia to develop the legislation so that companies can efficiently and effectively run captives without needing to use domiciles a long way from home.
“As a global captive leader, bringing this capability to Saudi Arabia is a dream of mine, one that will help in developing the local insurance industry while further enhancing the available insurance solutions we can provide to our clients.”
When does a captive make sense?
The total number of registered captives in the UAE, Qatar, and Bahrain is 13, with 11 of them managed by a captive manager. Marsh is involved with most of these.
In addition to these 13 captives, several Middle East companies use captives domiciled outside of the region — for example, in Bermuda or Guernsey.
At present, the captives under management in the Middle East are from a broad range of industries including oil and gas, transportation and logistics, energy, mining, power and water, and property. However, the use of captives as part of a risk management and insurance strategy is suited to many other sectors such as health, finance, and manufacturing.
The most popular line of business remains property, although captives under Marsh management also write political violence, liability, construction, and group accident programmes.
Outstanding results
The financial performance of the Marsh-managed captives has been exceptional. In 2023, gross written premium (GWP) across the captives reached nearly $250 million — a 10% increase over 2022.
Net income of the captives surpassed $100 million in 2023, a rise of more than 50% from $66 million in 2022. Additionally, total captive-related assets under Marsh management in the Middle East increased 40%, year on year, to $612 million in 2023.
Demand for captives continues to grow
Meanwhile, activity levels in the Middle East have reached unprecedented heights. Marsh Captive Solutions has experienced a surge in demand for feasibility studies for captives in 2023 and 2024 from clients in most industries and locations throughout the Middle East.
The majority of companies in the region are looking to use a captive for key company risks such as property, political violence, and liability. In addition to these lines of business, there is growing interest to use a captive for employee benefits, marine cargo, and other non-traditional risks.
Marsh-managed captives in the Middle East continuously explore new lines of business to enhance their risk coverage. Notable areas of expansion are group travel (including kidnap and ransom coverage), marine cargo, and trade credit insurance against non-payment risks.
An increasing number of captives in the Middle East are opting for private or public ratings. By obtaining ratings, captives enhance their credibility and demonstrate their financial strength and stability to stakeholders. These ratings have been positive for captives under Marsh management, ranging from B++ to A-.
Mining companies looking to increase captive utilisation – Lockton
Mining companies, particularly those mining thermal coal, are looking at alternative risk financing tools, such as captives, for liability cover as a means of countering stricter and dwindling capacity in the commercial market.
Consistent with the wider financial sector, mining liability insurers are focussing on ESG and specifically thermal coal exposures when it comes to writing risk.
The property market for mining operations is generally stable, with limited new participants or withdrawals, according to Lockton’s 2024 Insurance Market Update.
Despite this, the sector is facing rate increases of around 5%, which may prompt further mining companies to look towards captive utilisation.
This pricing trend is likely to continue during 2024 with expectations the market will become more of a buyer’s marketplace.
The mining sector, and related energy sector, were hit with significant claims during 2022 and 2023, with several large claims reported in 2023.
The report noted that insurance capacity has reduced in Brazil for mining companies looking for worker’s compensation cover, mainly due to changes in the guidelines of the primary local reinsurer, which is a key leader in insurance treaties.
Lockton said this has prompted major insureds to seek alternative capacity through international facultative reinsurance or consider establishing captive reinsurance structures.
In recent years the mining sector has been affected by an array of political violence events, which in many cases has compromised physical assets and revenues.
Directors and officers insurers’ risk appetite in the mining sector varies, depending on several internal and external factors, with one being a companies’ ESG disclosures.
UK captive regime would bring captives further into the mainstream
The potential introduction of a UK captive regime would bring the risk financing tool further into the mainstream and may potentially mean more companies, rather than less, will look to utilise neighbouring domiciles such as Guernsey.
Captive Intelligence reported in November last year that the UK government will launch a consultation on the design of a new captive framework in spring 2024, with the aim of “encouraging the establishment and growth of captives” in the United Kingdom.
Rather than any potential competition between Guernsey and the UK, Mark Elliott, CEO at Guernsey-based Marco Re and a board member of the Guernsey International Insurance Association (GIIA), said it was more about “growing the size of the captive pie for everybody, I think, and we’re very supportive of the UK’s ambition in that regard”.
William Lewis, UK insurance representative for Guernsey Finance, said captives are becoming more commonplace and this should be beneficial to the whole sector.
“For companies that were reticent about a captive previously are suddenly finding themselves realising that other companies are setting up captives and protected cell companies (PCCs), so ‘why shouldn’t we?’” he said. “I think this is going to be good news.”
Elliott said a UK captive regime would help bring captives into the mainstream even more than they currently are.
“As we’ve seen Italy, France, and hopefully the UK in the near future, introduce captive regimes, then we’ll have more companies looking to utilise captive structures, either in the UK or in the existing established jurisdictions,” he added.
While London’s leading position as a global insurance hub and the expertise already in place will be the unique selling proposition of a UK captive domicile, regulatory understanding and responsiveness will be the ultimate factor as to whether it succeeds or not.
Elliott said a UK regime would offer more choice and more options for buyers, “which is a good thing for everybody”.
He also believes there will be pros and cons of the UK as a jurisdiction alongside all the other domiciles.
“That’d be up to clients to decide, but generally, I think we see it as a positive development,” he said.
IRS continues war on 831(b) captives: When will it end?
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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.