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THG captive “absolutely critical” for cyber renewals, market negotiations

Richard Cutcher
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THG captive “absolutely critical” for cyber renewals, market negotiations

THG Plc’s pure captive formation in Guernsey last year played a key role in ensuring a smooth cyber insurance renewal and has given the fast-growing group more leverage in the commercial market.

Speaking on the Global Captive Podcast Joshua Cryer, director of risk and insurance at the e-commerce retail company, said he was already a big believer in captives from his previous roles as a risk manager and broker, but upon arriving at THG it was clear the hardening cyber market presented an immediate challenge that needed to be addressed.

“I was going to need something else within my arsenal to enable me to negotiate effectively with the cyber insurance market specifically, given the fact that the market was hardening at such a rate of knots,” he said.

“When we talk about insurance enabling the business, at that point it would have potentially hindered our business from operating if we were unable to secure the right levels of cyber insurance that we needed.”

Cryer began work on a feasibility study with RISCS in October 2021 and was able to get the Guernsey captive established in time for a March 2022 renewal which he described as “absolutely critical”.

He said it was important to be in regular contact with RISCS, the captive managers Aon and the reinsurance market throughout the feasibility and formation process to ensure all the pieces fell into place and made the fast formation possible in the timeline required.

“Without Allianz providing that stop loss reinsurance agreement in record time, I wouldn’t have been able to form the captive at that March 2022 renewal,” he added.

“Whilst the captive was formed specifically for that cyber exposure, we knew that we had to diversify the portfolio of the captive to enable us to manage that risk versus having a cyber heavy risk in year one.”

THG Insurance Limited was formed in March 2022 and Cryer explained how the captive is already delivering value to the group.

The captive has reported significant profits in its first 18 months, ahead of expectations, while, more importantly, it has delivered tangible benefits for the enterprise risk management and insurance strategy.

More ownership and focus is put on managing and mitigating risks, while there has also been insurance premium savings.

“It’s significantly helped us, with our new broker Marsh, to achieve a significant reduction in the overall insurance spend at the 2023 renewal,” Cryer said

“So that equated to circa 25% across the whole portfolio. It was that skin in the game that enabled us to speak confidently with the insurers and for them to understand that actually we’re taking the risk and confident in our risk management.

“It enabled us to get significantly better terms than last year, whilst also reducing the actual exposure into the captive.”

Guernsey

When forming the captive Cryer, supported by RISCS, went through a full domicile selection process with Guernsey coming out as the first choice.

Cryer highlighted the level of expertise and availability of captive managers, the solvency and regulatory requirements and proximity to the London (re)insurance market as key attributes that put Guernsey top of the list.

“The fact that the London reinsurance and insurance market recognises Guernsey as being a credible market for captives,” he added.

“Whilst negotiating those reinsurance agreements, it enabled us to speak directly with both the reinsurer and captive manager and for them to have a relationship and understanding of each other. It enabled us to expedite that process in relation to the formation and the actual agreement.”

Alex Symons, associate director at Aon Insurance Managers in Guernsey, said the capital and regulatory regime in the domicile is a real positive with the lack of Solvency II meaning captives can be regulated in a proportional manner.

“The regulator has always had a policy where they want to encourage innovation, but in a controlled manner, which is quite important for a lot of our clients where they want to look at bringing new products to market that perhaps aren’t available in the commercial space,” he said.

“They want to know that the regulator understands that they might be writing something that’s not completely comparable in the commercial market and they’re comfortable with that.”

Going forward, Cryer said they have thought “long and hard” about what role the captive will play in the next 12 months to three years.

He is open to retaining more risk on existing lines, while adding add more lines to the captive to diversify its portfolio with employee benefits one area they are exploring to understand what the profile looks like globally.

Captives writing cyber programmes “emerging as a trend” – AM Best

Luke Harrison
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The number of captives writing cyber coverage in their programmes is “emerging as a trend”, according to Fred Eslami, associate director, alternative risk transfer and cyber security leader at ratings agency, AM Best.

“We’ve seen a number of captives including cyber coverage in their programmes but writing cyber in the captive is not widespread,” he told Captive Intelligence.

“However, what we are hearing from those who have included cyber, is that it is emerging as a trend.”

The number of captives writing this coverage is on the rise, with Marsh managed captives writing cyber increasing by 75% between 2020 and 2022, according to a recent Marsh US Cyber Purchasing Trends report.

Eslami said that although the amount of cyber cover in captives is not “huge”, AM Best is seeing large organisations with the financial “wherewithal” and extensive cyber security investment able to put a layer of cyber into the captive.

He said that putting cyber into a captive does not happen “overnight” with the larger organisations doing their due diligence over the past several years.

“Typically, the captive sits within the ERM framework of these large organisations,” he said.

“It’s familiar with every aspect of the organisation, including the IT security investments and the talent that they hire to make sure that the corporation is protected.”

Captive Intelligence reported in May that Belgian chemical company Solvay, is insuring part of its cyber programme through its Luxembourg captive with the insurance team working alongside the chief information security officer (CISO) to fund cyber security initiatives.

Eslami said he has seen corporations spend several $100m a year in the cyber security field alone.

“In addition to that, they could be paying $10-12m buying coverage from commercial market,” he said.

“So, they come and evaluate all the risk and reward and realise it makes sense to keep cyber within the captive.”

Captive Intelligence published a long-read back in March, detailing that a lack of capacity and high pricing in the cyber market is resulting in increasing captive utilisation for cyber risk.

Eslami revealed that AM Best rates about 220 captives globally, with about 150 of those being in the US.

“Bermuda is the biggest domicile outside of the US. Of the 150 US captives, 36 are Vermont captives, and they’re all strong performing captives,” he added.

Last month, the ratings agency published an article that showed captives continue to outperform commercial insurers in both underwriting and operating profitability, according to AM Best’s latest Market Segment Report.

GCP Short: THG’s Guernsey captive formation and evolution

Richard Cutcher
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GCP Short: THG’s Guernsey captive formation and evolution
Joshua Cryer, THG Plc
Alex Symons, Aon Guernsey

This GCP Short, produced in partnership with We Are Guernsey and the Guernsey International Insurance Association (GIIA), shares another story of a new captive owner and the rationale behind its risk financing strategy.

Joshua Cryer, Director of Risk and Insurance at THG, a fast growing UK plc, tells us about THG, why a captive became a relevant option for the group two years ago, how they went about forming the captive and how he hopes to utilise it in the future.

Alex Symons, associate director at Aon Insurance Managers in Guernsey, provides the captive manager perspective on formation and utilisation, and explains why Guernsey is home to so many UK Plc-owned captives.

There is also a good discussion on governance and the value of non-executive directors.

For more information on We Are Guernsey and GIIA, visit their Friend of the Podcast page.

For all the relevant news and analysis on developments in the captive insurance sector, visit Captive Intelligence and sign up to our twice-weekly newsletter here.

Colombian municipal captive has Excellent ratings affirmed

Luke Harrison
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AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermuda-domiciled Maxseguros EPM Ltd. The outlook for the ratings is stable.

Maxseguros is the single parent captive wholly owned by Empresas Públicas de Medellín E.S.P. (EPM), which is owned by the Colombian municipality of Medellín.

The captive provides reinsurance to the EPM group, covering property damage and business interruption, commercial crime, cyber risk, directors and officers, errors and omissions and general liability exposures.

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

The AM Best ratings also reflect Maxseguros’ risk-adjusted capitalisation being at the strongest level, as measured by AM Best’s capital adequacy ratio (BCAR), and supported by a comprehensive reinsurance programme, coupled with a conservative investment policy and limited premium risk exposure.

These positive rating factors are offset partially by EPM’s “substantial” financial leverage and Maxseguros’ limited business and market scope, which is mitigated by the company’s stable results, favourable geographic spread of risk and the history of Maxseguros’ growing surplus position.

While Maxseguros depends on reinsurance, the company’s well-set underwriting and technical capabilities have allowed it to position itself as a key participant within EPM’s reinsurance panel.

AM Best said positive rating actions could take place if Maxseguros’ operating performance reflects a stable, upward trend of profitable underwriting and investment results that improve its metrics to compare favourably with a strong assessment level.

Negative rating actions could occur if Maxseguros’ operating performance deteriorates due to increased retentions, to a point that it is no longer supportive of the ratings, and consequently, causes erosion in the company’s capital base.

“Negative rating actions could also arise if there is a material shift in the risk profile or role within EPM that undermines the stability of the company, including increased activity in cash outflows to the parent,” the ratings agency said.

Authentic raises $5.5m, targets SaaS companies with ‘Captive in a Box’ solution

Luke Harrison
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New York and Ohio-based Authentic, an insurance platform targeting vertical software as a service (SaaS) companies, franchises, and other groups with its Captive in a Box solution and raised $5.5m in a seed round.

The company said its Captive in a Box platform allows for any vertical SaaS company, franchise or association to launch captive programmes for their members in a matter of weeks.

Authentic is offering business owner’s policy (BOP) coverage and is also targeting businesses in food and beverage, salon and spa, retail, fitness, and professional services.

It handles all the logistics of setting up a captive including, legal, underwriting reinsurance and capital, and claims management and customer servicing.

“Captive insurance provides many benefits to organisations and their members, but until now, setting one up was a very long and expensive process,” said Cole Riccardi, CEO and founder at Authentic.

“Through Authentic’s platform, anyone can create their own captive insurance program and realise the benefits within days.”

The company is comprised of professionals from technology and insurance companies, including Next Insurance, Amazon, Canary Consulting, and Aquiline Capital Partners.

The funding round was led by Slow Ventures with participation from Altai Ventures, MGV, Upper90, Clocktower, Commerce Ventures, Mischief Ventures, Core Innovation Capital, and prominent insurance executives.

“Authentic’s ‘captive in a box’ allows them to sidestep the current distribution problems of adverse risk selection that the insurance industry has struggled to overcome,” said Sam Lessin, managing partner at Slow Ventures.

“Authentic’s partners stand to benefit from sharing data to better assess and price risk, as they are the ones that reap the rewards from more successful programs.”

Domicile Wars: Singapore sees captive growth from Asia parented companies

Luke Harrison
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Domicile Wars: Singapore sees captive growth from Asia parented companies
  • Asia-based captives saw 58% increase in premiums in 2022
  • Captive professionals in Singapore not concerned about OECD global minimum 15% tax
  • More local talent needed to compete as jurisdiction grows

Singapore is experiencing “significant captive growth” from Asian parented companies, as the region sees an uptick in captive formations.

Captives can be formed in a number of different jurisdictions in the Asia Pacific region including domiciles such as Labuan, Hong Kong, Micronesia, Mainland China, and the Cook Islands. There is also a small number of captives in New Zealand and Australia.

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UK can offer unique captive proposition in right regulatory framework – Julia Graham

Luke Harrison
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UK can offer unique captive proposition in right regulatory framework – Julia Graham

Airmic CEO Julia Graham believes the United Kingdom could offer a “unique proposition” for captives if a “proportionate and fit-for-purpose” regulatory environment is developed with long term commitment from the government.

Airmic, the UK’s risk and insurance management association, joined a roundtable meeting organised by the London Market Group and City Minister, Andrew Griffith MP, economic secretary to the Treasury, on 18 September, to discuss the potential introduction of a UK captive regime.

It is Airmic’s position that a UK captive regime should be implemented outside of Solvency II/Solvency UK so a more proportionate approach can be taken.

The LMG believes this can be achieved through secondary legislation to create a new class of ‘captive insurer’ as an additional schedule to the Regulated Activities Order.

Graham said Airmic is encouraged by the enthusiasm of the LMG and Government to explore the practicalities of introducing a captive regime in the UK that would provide Airmic members with another captive domicile option.

“The UK, already a world class (re)insurance centre, has the potential to offer a unique proposition for captive owners, with expert service providers and a trusted strong governance community already in place and a talent pool of professionals with a deep knowledge and experience in all aspects of managing risk and risk financing,” she said.

“However, a proportionate and fit-for-purpose regulatory environment for captives would need to be developed with clear guidance published. Strong captive domiciles benefit from committed governments and regulators that demonstrate they are in the captive business for the long term.

“We look forward to engaging further on this topic with the London Market Group and UK government.”

Graham was joined by Richard Cutcher, in his role as Airmic’s captive ambassador, and several captive owners who are members of the Association, to share their thoughts on the benefits of captive insurance and what a good captive regulatory regime might look like for the UK.

Airmic has an active Captive Special Interest Group, with more than 50 regular participants that own and utilise captives in domiciles all around the world.

Cutcher said Airmic is “always keen” to explore opportunities to widen the pool of solutions and options available to members who own a captive or are considering forming one in the future.

“Airmic members are currently well served by captive domicile options, but the UK, with all the (re)insurance infrastructure and expertise it already has in place, has the opportunity to present something compelling,” he said.

Cutcher said it was important that any new captive environment would be implemented outside of Solvency II, “so captives can be regulated on a more proportionate basis”.

Airmic said it would continue to engage with the London Market Group, City Minister Andrew Griffith MP and Prudential Regulation Authority (PRA) on the initiative.

There is a growing impetus in Europe for more ‘home’ captive domiciling, with France leading the way with new legislation finalised this year and a steady pipeline of new formations materialising.

Singapore captive association to support regulatory, industry dialogue

Richard Cutcher and Luke Harrison
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Singapore captive association to support regulatory, industry dialogue

A captive owner association in Singapore is being developed by PARIMA and could be the first of several such groups in the region.

PARIMA is the risk management association for the Asia region and has a growing number of captive owners within its membership.

Speaking to Captive Intelligence Franck Baron, chairman of PARIMA and group deputy director of risk management and insurance at International SOS, which owns a captive in Singapore, said an association for captive owners in the domicile would be a good way to share best practices and coordinate dialogue with the Monetary Authority of Singapore and industry.

“We are creating a captive association, which is to become the body for captive owners in Singapore,” Baron said.

“This will allow us to have conversations with MAS and help them to promote the domicile because this domicile is extremely supportive to business and risk management.

“We are creating an Association because we believe that there is still a lot that can be done in order for risk managers to look at captives as a strategic risk financing tool.

“We are still seeing too many panic captives, because people look at it as being a way to absorb the insurance premium cycle, instead of creating something with a strong foundation at parent level where captives are viewed as a risk financing tool.”

Speaking on the Global Captive Podcast in June, Baron said there was a wider ambition to launch captive owner associations across the region, but Singapore was a good first step.

“After a long period of time of thinking about what PARIMA can do to supported the development of captives, we came to the conclusion that we have to create captive owner association for Asia, starting with Singapore,” he explained.

“I am very excited about it because we want to gather all captive owners together so that we can have a clear and distinct voice when it comes to talking to the regulator, the market and sharing best practices.”

GCP #93: Interviews from the Bermuda Captive Conference

Richard Cutcher
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GCP #93: Interviews from the Bermuda Captive Conference
Grainne Richmond, Aon
Pierrick Livet, KPMG Bermuda
Michelle Sivanayson, Marsh Captive Solutions
Eduardo Fox, Appleby
Michael Woodruffe, Kirkway International

In episode 93 of the Global Captive Podcast, supported by the EY Global Captive Network, and hosted by Richard Cutcher, we share live interviews from the Bermuda Captive Conference that took place 12-14 September.

01.43 – 07.04: Eduardo Fox, a consultant to Appleby law firm and Davies Captive Management, is the latest recipient of the Fred Reiss Lifetime Achievement Award, in recognition of his contribution to the domicile, particularly in business development for Latin American captives.

07.35 – 11.00: Michelle Sivanayson, recently appointed as Marsh Captive Solutions’ new islands practice leader, based out of Bermuda. She discusses her new role and plans for further development of the captive practice in the region.

11.53 – 20.38: Local reinsurance broker Michael Woodruffe, president of Kirkway International Limited, is focused almost entirely on North American captive and MGA business. He explains why “captive business is the best business” for reinsurers.

21.14 – 27.25: Grainne Richmond, executive vice president and head of captives at Aon Bermuda and director and lead chair of the Bermuda Captive Network. Grainne shares the lates update on developments and progress of the Bermuda Captive Network and why it is important to attract new talent.

28.00 – 32.00: Pierrick Livet, senior manager in insurance advisory at KPMG in Bermuda. Pierrick and Richard were on the opening panel of the conference where we discussed evolving captive ownership structures, emerging risks and multi-captive strategies.

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

UK captive regime gains momentum with Treasury meeting

Richard Cutcher
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UK captive regime gains momentum with Treasury meeting

A delegation of captive specialists met with the UK government’s City Minister Andrew Griffith at the Treasury today to discuss the potential introduction of a captive regime.

The delegation and meeting was organised by the London Market Group and Griffith and included captive owners, brokers, insurers and the wider risk management community.

The LMG has proposed an ambitious captive regime to ensure it can be viewed as a competitive option alongside established, international domiciles.

“This must sit alongside specific guidance for captives which focuses on reduced prudential risk assessments, a swifter approval process (30 – 60 days from application to licensing), reduced reporting requirements, lower capital requirements and reliance on wider group functions such as auditing etcetera,” the LMG states in its Plan for the Future document.

The LMG believes this can be achieved through secondary legislation to create a new class of ‘captive insurer’ as an additional schedule to the Regulated Activities Order, that would not be regulated under Solvency II or the proposed replacement, Solvency UK.

While the LMG has been exploring the idea of a UK captive regime for the past three years, this is the first time government has convened the market to hear first-hand the potential benefits and practicalities of how one would work.

“It was great to get round the table today with key industry leaders and financial services regulators to explore the case for designing a competitive UK captive insurance regime,” said Griffith.

“I am thankful to the London Market Group for bringing us all together and I look forward to continuing to work with industry to support growth and international competitiveness across the UK’s insurance sector, helping ensure the UK remains a world leading destination for risk management solutions and insurance innovation.”

There is momentum in Europe for more ‘home’ captive domiciling, with France leading the way with new legislation finalised this year and a steady pipeline of new formations materialising.

Captive Intelligence understands a first captive formation in Italy should be completed this year, while discussions are taking place within Spain and Germany’s captive communities about specific captive regulation.

Chris Lay, CEO of Marsh UK & Ireland and a former president of Marsh Captive Solutions, has previously said he believes London could be “a unique and attractive location for captive investment”.

Caroline Wagstaff, CEO of the LMG, attended the meeting and said: “The London Market is very grateful to the City Minister for his energy and focus on helping the market to thrive through the possible introduction of new products.

“Despite being the global hub for risk transfer, the UK’s regulatory regime is not conducive to businesses setting up captive insurers here. This is a rapidly growing global industry; with captive premium estimated to reach US$161 billion by 2030, and other jurisdictions – including France and more recently Italy, are opening their doors.

“If we are to remain the place where business comes for risk transfer advice and solutions, then not having this string to our bow means we are not keeping pace with new and innovative methods of risk management.

“A UK captive domicile would offer participants an extensive financial services ecosystem; London-based global brokers with extensive captive consulting experience, an unrivalled range of local banking and asset management options and the world’s largest and most sophisticated reinsurance market.”

The initiative to introduce a bespoke regulatory regime for captives in the UK is entirely separate from the Captive Syndicate project at Lloyd’s.

In the case of Lloyd’s, a captive would operate within Lloyd’s exactly like a traditional syndicate and would be overseen by the market, while a UK captive would be regulated directly by the Prudential Regulation Authority (PRA).

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