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Group captives a fast-growing trend in the US – AXA XL’s Mark Benz

Luke Harrison
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The utilisation of group captives in the United States is expanding as companies look to share risk, according to Mark Benz, head of group captives at AXA XL.

Middle market insureds are most likely to look to be members of a group captive structure.

“They are typically coming out of the guaranteed cost environment where they’re sending premium to a carrier without the potential of getting anything back for good performance,” Benz told Captive Intelligence.

He said AXA XL is trying to take the top performers in those middle markets.

“What ends up happening is when they join the group captive, and they keep outperforming their loss projections, keep adding more loss control, they start getting some of those funds back in the form of dividends, and that really incentivises them to do better.”

Benz said group captives are a fast-growing trend in the US, and they used to be considered as an alternative market, “but now I would actually look at them as just another market”.

“It’s no longer people are trying to find them; they’re out there, and they’re probably $5bn to $7bn in premium.”

Captive Intelligence reported earlier this month that Captive Resources had now surpassed $4bn in annual premium going through the group captives it consults on.

Depending on the industries and the risks involved, some group captives are heterogeneous while others are homogenous.

“It’s spread across different industries, and it depends on the model they’re looking at,” Benz added.

If it’s a heterogeneous captive, they are usually diverse in their industry segments and geographic locations.

“If we are talking about a homogeneous captive, a lot of them are focused on construction, transportation, agriculture, and really those specific industries where it pays to bring together those insureds and bring them in one room,” he said.

Benz said the benefit of a group captive for these companies is that they can talk about their issues and what they’re seeing, in addition to focusing on loss control and risk control mitigation techniques.

“This helps the board meeting flow better in some circumstances,” he said. “The heterogeneous captive also gives insight from all the other markets, so clients do get to pick up something there too, if they are an insured in a heterogeneous captive.”

Pure captives, SPCs and group captives grow in Cayman

Luke Harrison
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The Cayman Islands Monetary Authority has published its captive figures for the first quarter of 2024, showing growth in the number of pure captives, segregated portfolio companies (SPCs) and group captives.

The number of pure captives domiciled in Cayman is now 288, an increase of two compared to year-end 2023.

There were 154 SPCs at year-end 2023, with the number rising to 157 in Q1 2024.

The number of group captives has now increased by two to 129.

Pure captives in Cayman are now writing $5.4bn in total premium, while group captives are writing $4.8bn. SPCs are responsible for $4.5bn in premium.

Assets under management (AuM) totals $20.8bn for pure captives, $13.5bn for groups and $15.2bn for SPCs.

Captive Intelligence’s data on the number of captives shows that there was a total of 41 new captive formations in the Cayman Islands in 2023, which took the total number of captives in the domicile to 567 at year-end.

Mauritian companies Fortree and Reinsurance Solutions announce partnership

Luke Harrison
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Mauritian companies Fortree and Reinsurance Solutions announce partnership

Fortree Management Services (Fortree) and Reinsurance Solutions are partnering to bring together their connecting experience and expertise.

Reinsurance Solutions is one of the largest independent African-owned reinsurance broking groups on the continent.

The firm is headquartered in Mauritius and has offices in Africa and London from where it services reinsurance clients across the broader continent and Indian Ocean islands.

Reinsurance Solutions has in-depth knowledge of the various African reinsurance markets and locally focused skill sets in these regions.

They have expertise all conventional lines of business, such as property, engineering, political & social risks, aviation, professional / financial lines, marine, energy, and liability amongst others.

“By combining our reinsurance broking expertise and captive capabilities with Fortree’s management expertise, we can empower businesses to take greater control of their risk financing strategies and potentially achieve cost savings,” said Blessing Chiguye, executive head at Reinsurance Solutions.

“This is a mutually beneficial partnership that will greatly assist current and potential captive owners or those businesses looking to redomicile jurisdictions.”

Fortree is based in Mauritius and provides a suite of financial services to meet clients’ business needs ranging from global business companies, trusts, authorised companies, to captive insurance, family office, insurance broker, and relocation to Mauritius.

The company leverages its experience and global network to tailor solutions that will help companies with their business objectives.

Fortree and Reinsurance Solutions share a common goal to make Mauritius the preferred pure captive insurance jurisdiction in the African region, together with the support of the Mauritian regulators.

They believe they have a successful platform for potential captive owners through their services ranging from company incorporation and licensing, administration, company secretarial, directorships, accounting and tax, compliance functions, corporate governance to underwriting, brokering, reinsurance and insurance management.

“It is with great humility that we are announcing this strategic alliance,” said Kaviraj Nuckchedee, director & head of captive insurance at Fortree.

“Mauritius has all the ingredients required to position itself as a centre of excellence for pure captive insurance and this is the direction we are heading together with our strategic partner, Reinsurance Solutions.

“The latter being among the leading reinsurance broking companies in the African Region will enhance the gaming field on the captive insurance front and with that together we will provide a seamless experience to clients.”

RMC Group win gives hope for future 831(b) battles – ZMF’s Matthew Reddington

Luke Harrison
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RMC Group win gives hope for future 831(b) battles – ZMF’s Matthew Reddington

The jury verdict in favour of captive management company, RMC Group and its president and CEO, Raymond Anker, against the Internal Revenue Service (IRS) highlights there are ways micro captives can be successful in cases that have historically gone against them.

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.

“They came back as no on every single tax year for each of the entities, which is obviously a  big win for us and a big loss for the Department of Justice (DoJ) and for the IRS,” said Matthew Reddington, partner and head of the Tax Controversy Practice at ZMF Law, speaking on episode 102 of the Global Captive Podcast.

Reddington and ZMF Law represented Anker and RMC Group in his case against the IRS.

In the case, the IRS had argued: “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.”

However, the jury found that Ankner and his entitles should not be held liable for each of the tax years in question.

“They’ve [the IRS] been feeling that they are 10 feet tall and bulletproof,” Reddington said on GCP #102. “They’ve won seven cases in a row in the US Tax court, but there’s other avenues to get better results.

“Moving forward, as we push on these buttons and try to find ways that we can take this out of the Tax Court’s hands and find ways to put this in front of a jury, then those wins are not nearly as automatic.

“This should help for settlement purposes, and should help for reconsideration, or maybe not even taking the case at all on behalf of the IRS.’”

The IRS has a history of going after captives making the 831(b) tax election, 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.

“This should help in pushing that back,” Reddington said. “The IRS take a bully approach in a lot of tax matters where they know that they can outspend and take more time and resources than the individual taxpayers.

“With any bully you’ve got to punch them in the nose to get them to lay off.”

Reddington said more court cases should eventually emerge in favour of micro captives if the courts do their job correctly and people keep fighting their case.

“Now that the IRS has shifted some of their focus into other areas and moved more onto conservation easements, there’ll be a huge focus in different areas, which will take their resources away,” he added.

“As long as we continue to fight and push with better facts, we should see some changes in the law.”

GCP #102: Matthew Reddington RMC case, Loren Crannell on Juul Labs captive

Richard Cutcher
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GCP #102: Matthew Reddington RMC case, Loren Crannell on Juul Labs captive
Matthew Reddington, ZMF Law
Loren Crannell, Juul Labs

In episode 102 of the Global Captive Podcast, supported by the ⁠EY Global Captive Network⁠, Richard brings two very different interviews.

01.30 – 12.50: Matthew Reddington, partner and head of the tax controversy practice at ZMF, discusses the recent jury verdict in favour of RMC Group and its CEO Raymond Ankner in a court battle with the Internal Revenue Service.

13.51 – 36.04: Loren Crannell, director and head of global risk and insurance at American e-cigarette company Juul Labs, tells me why forming a captive has been such an important enabler for the business in recent years.

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.

Premium increases in agriculture open the door to captives

Luke Harrison
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0
Premium increases in agriculture open the door to captives
  • Group captives and cooperatives are a common way of diversifying risk in the sector
  • Having funds available to form a captive an issue for some in the industry
  • Crop insurance and employee benefits provide challenges unique to agriculture

The agriculture sector provides a unique opportunity for the captive industry to help organisations mitigate rising costs in the commercial market.

Group captives and cooperatives are commonly utilised in the agriculture space as industry members look to band together to diversify their portfolios amid growing challenges.

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GROWMARK members saving $20m in premium from captive utilisation

Luke Harrison
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GROWMARK members saving $20m in premium from captive utilisation

Members of the GROWMARK captive are saving more than $20m in premium cost since placing their property risk inside the captive.

GROWMARK is an agricultural cooperative with around 250 members, but not all of them participate in the captive.

“We provide the fuel and propane, but we also provide the seed for planting, crop nutrients, crop protection, and all the agronomy products that the farmer needs,” Jaci Mennenga, director of risk management at GROWMARK told Captive Intelligence.

“After harvest, we are the first handler and store the farmers’ grain,” she said. “Our members entrust GROWMARK to produce and deliver the products they need.”

The company has two Vermont-domiciled captives, one for property and casualty insurance, and another for health insurance.

“We started to put a lot more of our property, general liability, and auto into the captive at the most recent renewal we had on 9/1,” Mennenga said.

“Until I got here in December of 2022, we were still purchasing a lot of risk transfer. Other than for workers’ compensation, the captive was not our primary insurance vehicle.”

Mennenga said after a few years of significant premium increases and recognising the surplus position they had built up in the captive, they began to increase the captive’s leverage.

“We ended up saving a significant amount of money by comparing what we were going to get for renewal terms from the market for full risk transfer versus what we put together using our captive to take on a large amount of the exposure and then transfer the rest,” she said.

“The savings were over $20m just on the property from looking at what the incumbent carrier wanted for a $200m programme compared to what we put together.”

Mennenga said property premium decreases is not something they have heard people talk about much in the commercial market over the last year, but the captive’s participation has delivered results.

“Many of our members had a premium decrease, so that’s an incredible result,” Mennenga said.

“The captive is performing well and now our next discussions are how we can figure out how to use the surplus in the captive for risk management incentives or how we’re going to give premium holidays or dividends.

“It’s a good place to be having those types of conversations now because of the good performance.”

Pure captive the right long-term solution for Boys Town

Richard Cutcher
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Pure captive the right long-term solution for Boys Town

Not-for-profit Boys Town continues to look for new ways to expand the use of its Tennessee captive, but will not lose sight of its general risk financing strategy.

Omaha, Nebraska-based Boys Town has supported vulnerable and homeless young people for more than 100 years, and includes its own village campus.

Speaking on episode 101 of the Global Captive Podcast David Williams, Director of Risk Management & Safety at Boys Town, explained why the organisation was forced into considering a captive five years ago.

Long-time partner Philadelphia Insurance Company had previously provided Boys Town an umbrella policy limit of $25m, but in 2019 asked if it could be reduced to $10m.

Boys Town accepted this change and were able to buy excess coverage on top, but two years later were asked to drop again to a $5m limit.

“We went out to the market and quickly found that we couldn’t get any of the excess to drop down into that five excess-of-five layer and we couldn’t get anybody to write it unless they had that primary piece,” Williams explained.

“We didn’t want to leave Philadelphia so at that point it was like: ‘Ok, here we go, let’s start a captive to cover that’.”

Williams said he had some previous experience with captives from his time at Aon, but not in feasibility studies or formations

Once they had done the research and analysis of what lines to include Williams needed to get approval from CFO, CEO, the board of trustees and the finance chair.

“It was relatively easy,” Williams said. “We have a lot of smart people at Boys Town and they get it and they realise this is a perfect opportunity for us to use a long term vehicle to take care of our risk that we can’t get insured.”

Square Mile Insurance Company, LLC was licensed as a pure captive by the State of Tennessee on 1 September 2022, with it starting by writing the property deductible.

Today the captive insures all of the wind and hail deductibles for Boys Town, the five excess-of-five umbrella policy and the workers’ compensation deductible.

In the last year Williams has also added the medical stop loss to the captive.

“We’ve really roundtable’d this with our broker to discuss some creative ideas, but we really want to be careful,” Williams said.

“We don’t want to add so many things so quickly and get so big that we lose sight of what we’re there for. And we want to make sure it’s profitable or we have enough capital in there to support a loss if we needed to.”

Tennessee requires captives to have a resident director from the State and Williams was recommended former regulator Michael Corbett by attorney Ben Whitehouse who had worked on the formation.

“Michael’s just been an awesome resource for us, as well as Ben in Tennessee, and also Josh Clark, from Gallagher, another person that was instrumental when he was with the department and getting us over to Tennessee.”

GCP #101: The Boys Town captive, and MAC on life after regulating

Richard Cutcher
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GCP #101: The Boys Town captive, and MAC on life after regulating
David Williams, Boys Town
Michael Corbett, Pinnacle Financial Partners

In episode 101 of the Global Captive Podcast, supported by the ⁠EY Global Captive Network⁠, Richard is joined by David Williams, Director of Risk Management & Safety at Boys Town, to discuss the Tennessee-captive formed by the not-for-profit in 2022.

Richard also catches up with Michael Corbett, senior vice president at Pinnacle Financial Partners, and a non-executive director on the Boys Town captive.

Corbett, Tennessee’s former captive regulator, is also now president of the bank’s Apex Captive Insurance Company.

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

831(b) captives “high priority area” for IRS as it completes 2024 Dirty Dozen

Luke Harrison
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0

The Internal revenue Service (IRS) has wrapped up its Dirty Dozen list for 2024 with micro captives taking the 831(b) tax election remaining a key focus area for the Service.

The IRS’ annual Dirty Dozen campaign lists 12 schemes that it believes put taxpayers, businesses and the tax professional community at risk of losing money, personal information and data.

Captive Intelligence reported in April 2023 that the IRS had proposed new regulations for ‘micro captives’, which divided opinion across America’s captive landscape.

The proposed IRS regulations would see certain 831(b) captives deemed “listed transactions,” and others labelled “transactions of interest”.

The IRS wrapped up the scheme for the year with a warning to taxpayers regarding promoters selling “bogus tax strategies” and “fraudulent offshore schemes” designed to reduce or avoid taxes altogether.

The Service said micro captive transactions continue to be a high-priority enforcement area.

“Taxpayers should be wary of anything that seeks to completely eliminate a legitimate tax responsibility,” said IRS Commissioner Danny Werfel. “Promoters continue to peddle elaborate schemes to reduce taxes and make a handsome profit.

“Taxpayers contemplating these arrangements should always seek advice from a trusted tax professional, not an aggressive promoter focused on pushing questionable transactions to make a buck.”

The IRS noted that it had prevailed in all micro captive Tax Court and appellate court cases decided on their merits since 2017.

However, last week, Captive Intelligence reported that captive management company RMC Group and its president and CEO, Raymond Ankner, had won an important case against the IRS in the United States, with the assistance of law firm, ZMF Law.

Captive Intelligence recently published a Long Read highlighting that the IRS remains at a stand-off with captives making the 831(b) tax election, and there is no indication of an imminent conclusion, with some observers believing the IRS is purposely drawing out the process.

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