AM Besthas affirmed the financial strength rating of A- (excellent) and the long-term issuer credit rating of “a-” (excellent) of Micronesia-domiciled Marble Reinsurance Corporation (Marble Re). The outlook of the ratings (ratings) is stable.
Marble Re is a wholly-owned subsidiary and a single-parent captive of Marubeni Corporation, one of Japan’s largest general trading companies.
The captive provides reinsurance and insurance protection against group-related risks across different regions, with its main line being marine cargo.
The ratings reflect Marble Re’s balance sheet, which is assessed as strong, and its strong operating performance, neutral business profile and appropriate enterprise risk management.
The balance sheet strength is well-supported by Marble Re’s risk-adjusted capitalisation, which is assessed at the strongest level, as measured by Best’s capital adequacy ratio (BCAR).
The company’s capital base is supported by low net underwriting leverage and minimal investment risk from its liquid and conservative investment portfolio.
Although the company has high dependence on reinsurance, it is mitigated by its diversified reinsurance panel.
Marble Re’s operating performance has been consistently strong with a five-year average combined ratio of 59% (2018-2022).
For the fiscal year ended 31 March 2023, the company recorded growth in premium income and net profit.
Negative rating actions could occur if there are substantial losses caused by a material shift in Marble Re’s risk appetite or if there is deterioration in Marubeni Corporation’s credit profile.
“Positive rating actions could occur if the company demonstrates sustained and notable improvement in its balance sheet strength fundamentals or material growth in its capital base,” AM Best said.
First Savings Financial Group, the holding company for First Savings Bank, has dissolved its captive insurance subsidiary, First Savings Insurance Risk Management Inc, as the company looks to reduce operating inefficiencies.
The captive was domiciled in Nevada and provided property and casualty insurance to the group, the bank and the bank’s active subsidiaries.
It also provided reinsurance to 11 other third-party captives in instances when insurance may not have been available in the commercial marketplace.
“As we navigated the challenging environment for the banking industry during fiscal 2023, we focused on reducing balance sheet and operating inefficiencies, risks that could result in earnings volatility, and complexity of the organisation, particularly in the fourth fiscal quarter,” said Larry Myers, president and CEO at First Savings Bank, commenting on the group’s performance after its fiscal year-end results were announced.
First Savings Bank reported a net income of $8.2m for the year ended 30 September 2023, compared to net income of $15.4m for the previous year.
Bermuda, Caribbean traditional captive centres for Canadian businesses
New Alberta legislation, regulator creates competition for British Columbia, offshore domiciles
Canada’s mid-market seen as significant growth opportunity
Global tax landscape could influence future domicile choices
Alberta is expected to quickly surpass British Columbia as Canada’s largest captive domicile, as Canadian businesses are presented with greater choice between onshore and offshore jurisdictions.
The often-named Energy Province introduced its captive legislation in July last year, and already has 11 captives domiciled in the region.
Subscribe to Ci Premium to continue reading
Captive Intelligence provides high-value information, industry analysis, exclusive interviews and business intelligence tools to professionals in the captive insurance market.
There is no end in sight when it comes to current US health insurance challenges, with SMEs disproportionally being impacted, according to ClearPoint Health CEO, Jeb Dunkelberger.
Earlier this month, the South Carolina-based company launched a medical stop-loss captive and an employer services platform to provide insurance to benefit advisors and small to midsized employers.
“When we look at the rising cost of health insurance, we see it disproportionately affecting small to mid-sized employers more than your larger employers,” Dunkelberger told Captive Intelligence.
“The second piece that exacerbates that issue is we do not see an end in sight, and we have provider shortages, and with labour shortages comes the increase in the costs for labour.”
ClearPoint’s captive platform is designed for employers ranging from 10 to 1,000 employees as well as to partner directly with benefit advisors.
Dunkelberger said there is a large shift in terms of the US population moving towards Medicare and Medicaid, and government funded lines of business, which sometimes reimburse less than commercial insurance lines.
“As we combine all the things happening on the clinical side, we start to realise commercial insurance is the one thing that is going to continue to be negotiated and pushed up to offset those costs,” he said.
“When we look at those small to midsize businesses as the ones that need protection, they need a solution.”
ClearPoint’s captive structure is domiciled in Tennessee, largely due to the State having the required legislation that supports Series LLCs.
“Tennessee also has the ability to be able to rapidly launch cells, which is really important for our business model,” Dunkelberger said.
“All the partners that we’re working with just so happened to be in Tennessee and have strong relationship with the Tennessee Department of Commerce and Insurance.”
Those using the ClearPoint platform can pick their preferred service partners, including third party administrators, pharmacy benefit managers, network’s clinical cost management and clinical quality improvement enhancers.
Dunkelberger said the key to the platform is to provide “optionality’ and allow different vendors and partners to compete to create the most value for the end user.
“It’s not uncommon to show an employer a large menu of options and them then take a step back and be stunned at the variety of choices they must make, which can be negative because it can be too much,” he said.
“The benefit advisor can be the connoisseur of selecting the different partners and can then present them directly to their client.”
François Messner, Senior Manager at EY Luxembourg, Business Tax Advisory
Hicham Mazouz, Partner at EY Luxembourg, Audit – Financial Services
After the French government passed legislation at the end of 2022 which paved the way for a new captive regulatory regime, in June 2023 further details were published concerning the equalisation provision available to reinsurance captives established in the country.EY’s Hicham Mazouz and François Messner examine the differences between the French and Luxembourg captive regulatory environments and, in particular, the respective equalisation provisions.
The captive reinsurance market has long been on the lookout for the introduction of a dedicated French regulatory framework, with the legitimate fears it could raise for the reinsurance captive market in Luxembourg.
After several delays, the French legislator finally introduced a new regulatory system in 2023 tailored for the reinsurance captive and inspired by the regulatory framework in Luxembourg.
Up until early 2023 when the new regulatory system was introduced, there were not more than a dozen reinsurance captives domiciled in France. Even so, the jurisdiction is now keen to create an environment conducive to the repatriation of reinsurance captives belonging to French groups and domiciled abroad.
The idea was that the regulatory system should also provide a risk management solution to other groups, helping them navigate the challenges of rising insurance costs, coverage limits or risks that are increasingly difficult to insure.
In this article, we will delve into the key distinctions between the French and Luxembourg regulatory frameworks for reinsurance captives and whether they spell the end for the French captive market in Luxembourg.
Subscribe to the Captive Intelligence newsletter to receive our FREE twice weekly updates with links to news, analysis and podcasts.
With around 200 active reinsurance entities, Luxembourg is undoubtedly a preferred jurisdiction for the domiciliation of reinsurance captives, for a few reasons: the stable economy, regulatory and tax environment, a rich ecosystem and regulatory constraints that are tailored to the complexity of reinsurance captives.
All those factors have enabled the growth of the Luxembourg captive market over the past decades.
The French reinsurance framework and its implication
The French Finance Law of 2023 (Law No. 2022-1726), as implemented by the Decree 2023-449 of June 7, 2023, authorises reinsurance captives to recognise a tax-free provision called the “resilience provision”.
However, this provision is only available to captives belonging to a non-financial group and is limited to a specific number of risks listed in Article A. 344-2 of the French Insurance Code, which includes damage to professional and agricultural assets, natural disasters, general civil liability, pecuniary losses, damages and pecuniary losses resulting from cyberattacks and disruptions to information and communication systems, and transportation.
In addition, annual allocations to the resilience provision are limited to 90% of the technical result or 10 times the required minimum capital.
The provision must also be allocated, following the ageing of the annual allocations, to the overall compensation of the negative balance in the technical income statement that may arise in subsequent years for all corresponding risks.
Unutilized annual allocations within 15 years will be added back to the taxable profit in the sixteenth year after their recognition.
The French framework appears to be more restrictive than the Luxembourg one, as the latter allows for the use of such structures by all types of groups regardless of their activities, whether industrial, commercial or financial.
Additionally, for Luxembourg reinsurance captives, a license to operate is granted by the regulator for non-life reinsurance, life reinsurance, or any type of reinsurance activity without any limitations on risks falling within the scope of the equalization provision.
Another major difference is that, according to Luxembourg accounting and regulatory rules, the entire technical result can be allocated to the equalization provision as long as the ceiling has not been reached. Also, there is no time limit for the utilization of this provision.
Tax considerations
The regulatory differences between the French and Luxembourg regimes also translate into the corporate tax aspects. This should come as no surprise because both jurisdictions follow the same principle of linking the tax balance sheet to the accounting balance sheet when determining the taxable basis.
As a result, the additional restrictions in the French regime, both in terms of allocation ratio to the equalization provision and temporal limitations, have a more significant effect on the taxation of French captives.
Therefore, while the Luxembourg regime allows for a full allocation to the equalization provision (subject to ceiling conditions) and a symmetrical reduction of the taxable basis, the French regime only provides for an allocation of 90% of the technical result (or 10 times the minimum capital) as mentioned above, with the remaining balance falling into the French taxable basis.
The Luxembourg regime has an additional advantage in that it does not impose temporal limitations on the reintegration of the equalization provision. This creates de facto a deferral of taxation until the time of release of the said provision, which either occurs when the ceiling conditions are no longer met, or the captive ceases operations.
On the other hand, the French regime has specific timing constraints, imposing the reintegration of the equalization provision after a period of 15 years. This temporal restriction results in the systematic taxation of provisions that are released after the fifteenth fiscal year.
Looking ahead
The new French regime represents a significant development in the French market and the criterion of proximity is unlikely to go unnoticed by some French groups.
However, for groups that require greater flexibility or are simply unable to qualify for the French regime, Luxembourg offers a bespoke regulatory and fiscal environment, in addition to a stable and reassuring legislative framework.
Despite this local change, we should not lose sight of the international context characterized by the increasing weight of new regulations on tax compliance and transparency.
Indeed, while Luxembourg has established itself over time as a captive jurisdiction, the upcoming tax changes in 2024 for groups subject to the 15% minimum taxation rule, known as “BEPS Pillar 2”[1], cannot be overlooked.
In an environment where tax competition incentivized some jurisdictions in the past to provide more favorable regimes for captives by leveraging lower nominal tax rates, many will have to re-evaluate their approaches and align with new international standards. Although France and Luxembourg stand out due to their higher nominal tax rates and their specific tax regime, lingering uncertainties require market players to keep a watchful eye on the implementation of this new norm.
[1] OECD/G20 Base Erosion and Profit Shifting Project (Pillar Two)
Ryan Specialty has signed a definitive agreement to acquire Chicago-based medical stop loss managing general underwriter (MGU), AccuRisk Holdings, LLC.
Terms of the transaction were not disclosed, and the acquisition is expected to close in December 2023.
AccuRisk’s services include medical stop loss underwriting, group captives, supplemental health care management and occupational accident.
“Dan and the AccuRisk team are proven leaders in the medical stop loss space, having built one of the largest independent medical stop loss MGUs,” said Patrick Ryan, Founder, Chairman & CEO of Ryan Specialty.
“Moreover, the AccuRisk team shares our vision to develop a comprehensive integrated health solution, providing retail brokers with a ‘one stop shop’ for self-insurance needs.”
In March, Captive Intelligence published an article detailing that the number of captives writing medical stop loss (MSL) continues to increase substantially, primarily as a result of hard market conditions in the commercial market.
MSL captives are on course to account for more than 25% of the overall MSL insurance market in the United States over the next few years.
“Since our founding, we have been focused on driving product innovation to enhance both flexibility and efficiency,” said Dan Boisvert, President & CEO of AccuRisk.
“We believe that joining Ryan Specialty sets the stage for the next upward inflection point in our growth trajectory.”
AM Best has affirmed the financial strength rating of A- (excellent) and the long-term issuer credit rating of “a-” (excellent) of Denmark-domiciled Ørsted Insurance A/S (ORIAS). The outlook for the ratings is stable.
ORIAS is single parent captive owned by Denmark-headquartered, sustainable energy company Ørsted, providing commercial property and construction insurance for the group.
ORIAS’ underwriting portfolio is concentrated by line of business and is well-diversified geographically.
The ratings reflect ORIAS’ 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.
The adequate operating performance assessment reflects ORIAS’ record of good, but volatile underwriting results, shown by a 10-year average combined ratio of 81.3% (2013-2022).
In 2022, ORIAS reported a net loss of DKK132.5 ($19m), due to unfavourable claims experience combined with adverse reserve developments on prior year claims.
Underwriting performance is expected to improve in 2023, benefiting from higher premium income from new construction projects underwritten by the captive, as well as insurance of a larger share of Ørsted’s operational renewables assets.
The captive’s performance is subject to volatility, resulting from the company’s exposure to potentially large property losses, although this is moderated by the captive’s comprehensive reinsurance programme.
Boost Insurance has launched Boost Re, the latest piece in the company’s insurance-as-a-service stack.
For managing general agents (MGAs), insurtechs, and embedded insurance customers, Boost Re’s captive-as-a-service solution will offer the ability for partnered companies to build their own insurance operations.
For alternative risk capital providers, Boost Re offers a conduit to deploy reinsurance capacity across Boost insurance programmes through captive cells.
“We built Boost to provide our customers with a scalable, long-term solution for building or expanding their insurance business, and Boost Re is the next stage in that vision,” said Alex Maffeo, CEO & Founder of Boost.
“By enabling our customers to build a full stack business on Boost Re’s rails, we can offer the same control, reliability, and safety of engaging directly with carriers or reinsurers, at a fraction of the time and cost.”
Boost said that its partners can participate in underwriting returns, have increased product and operational control over their programmes, and get transparent programme data.
Partners can also provide their own reinsurance capacity to sit behind the programmes they build on Boost’s infrastructure.
Captives have an opportunity to drive innovation in ESG and insurance, according to Maria Arana, ESG leader Europe at Marsh, and Lorraine Stack, international sales and consulting leader at Marsh Captive Solutions.
Speaking on an episode of the Global Captive Podcast, Arana explained how ESG factors are beginning to influence underwriting decisions in the commercial market.
A Marsh underwriting survey of the London market in 2022 showed 40% of underwriters were already factoring ESG indicators into underwriting decisions, while 100% agreed that ESG factors will play a role in the process in the future.
Subscribe to the Captive Intelligence newsletter to receive our FREE twice weekly updates with links to news, analysis and podcasts.
Arana said while the Net Zero Insurance Alliance (NZIA) had been largely abandoned, she expected underwriters to continue to decarbonize their portfolios.
“We have observed three main characteristics,” she said. “Capacity withdrawals, obviously from high carbon intensity occupancies, but also capacity withdrawal from occupancies which are exposed to catastrophe phenomena which are exacerbated by climate change.”
On wordings, Arana said some of the restrictions concern liability related to litigation risks.
“Some of our energy clients will be looking at climate change risk exclusions on their liability policies if they are one of the energy clients that have a high carbon intensity,” she added.
On a more positive note, however, Arana said there is a strong desire to innovate and captives could have a role to play, especially on supporting the market when it comes to insuring the new technologies needed for energy transition.
“There is a strong interest from commercial insurers to increase their percentage of portfolio that refers to renewables, but they are very reluctant to take specific risks and in particular, technology risk,” she said.
Arana explained that the commercial market has not entered aggressively to insure new technological innovations, such as waste-to-fuel and hydrogen, and it remains more comfortable with “bread and butter” renewable risks.
Stack said she has seen Marsh-managed captives provide insurance support to the parent group on renewable energy projects such as wind farms and solar installations, while a risk retention group (RRG) in the United States is now writing conservation defence insurance.
On innovation, Arana and Stack said we are only beginning to see the start of what is possible, but captives can play a meaningful role in supporting the commercial market.
“From the market there is a very strong desire to invest in innovation when it comes to ESG,” Arana said.
“When it comes to climate, there are sentiments about insuring the transition, but there is an uncertainty in which direction to go and I think there is space for captives to give direction to the commercial market.”
Stack said captives can be used to produce tailored insurance products, providing coverage for new technologies, financing renewable energy products and green construction projects.
“There’s perhaps using the captive as a means of incentivizing behaviour across the firm,” she added.
“Providing insurance for subsidiaries with good carbon emission reduction programmes or emission offset programmes.”
Captive correlation
In March 2022, Marsh launched its ESG Risk Rating tool, a self-assessment that enables clients to measure their organisation’s ESG performance and understand their ESG risk profile from an insurance perspective.
“When we started the analysis we expected that companies with captives would have a higher ESG score because they’re more proactive in their risk management, and we expected to see a correlation with the Governance component more than anything,” Stack said.
“We did find that those companies owning captives had a higher ESG score and what we were surprised to find was that the strongest statistical significance was relating to the Social component.
“As someone who is very passionate about employee benefits, I’d hope that part of that is to do with the greater collaboration and harmonization between risk management and HR, but there’s probably other issues underlying that as well.
“Our research is at its beginning phases, there’s more to be done, but it certainly looks very promising.”
Outside of employee benefits, Stack said there are straight forward governance steps to be taken too.
The first would be to integrate ESG policies into the captive’s governance structure.
“At a minimum, this means ensuring that the board of directors are considering ESG during board meetings so its on the agenda,” she said.
“There are regulators, certainly in Europe that are pushing captives in this direction so it is important to do that.”
In the short term, this could extend to risk assessments and the implication of climate risk on underwriting portfolios, while ESG experts and consultants could be used to assess the captives’ ESG performance.
“Over the longer term, investing in ESG friendly assets and considering ESG linked insurance products for the group which could lead to linking products to ESG performance.”
Captive Intelligence has previously reported on captives signing up to the United Nations’ Principles for Sustainable Insurance (PSI), first Enel’s captive, followed by captives owned by Sonepar and International SOS.
Listen to the full GCP episode with Lorraine Stack and Maria Arana on the Captive Intelligence website here, or on any podcast app. Just search for ‘Global Captive Podcast’.
In this GCP Short, produced in partnership with Marsh Captive Solutions, Richard is joined by Lorraine Stack, International Sales and Consulting Leader, and Maria Arana, Marsh’s ESG Leader Europe.
Maria and Lorraine discuss how the commercial market is factoring ESG metrics into underwriting decisions, the ways we are already seeing captives contribute to ESG efforts and the direction of travel for both the commercial market and captives.
For more information on the ESG Risk Rating, referenced by Lorraine, click here.
To download the ESG Underwriting Survey, referenced by Maria, click here.
