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Captive, international programmes increase control, reduce TCOR – HDI Global

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Deploying an international programme, backed by a captive, should give businesses greater visibility of insured operations and reduce the total cost of risk (TCOR), according to Jason Tyng and Marco Hensel, of HDI Global in the United States.

Speaking on a GCP Short, underwriting lead Hensel outlined the definitions of difference in conditions (DIC), difference in limits (DIL), freedom of services and admitted versus non-admitted insurance and their relevance to international programmes.

HDI Global appointed Tyng its first US captive leader in January 2023 with the German industrial insurer expanding its fronting capabilities and services to State-side captive owners.

Tyng and Hensel first featured on the Global Captive Podcast in May when, in an interview recorded at RISKWORLD in Atlanta, they said the target was for its US fronting business to be writing $100m in gross premium within five to six years, expanding into auto, workers’ compensation and potentially cyber.

“When you’re talking about large multinational organisations that have high existing premiums and they want to form a captive, the captive becomes an attractive risk management tool if they’ve got a lot of high frequency, low severity claims,” Tyng said on this latest episode.

“With an international programme, when you have a footprint all over the globe, what the captive allows you to do is create the consistency across the enterprise.

“A lot of companies talk about the total cost of risk and how they manage that risk. You want to be able to have consistency and similarity from Canada to Mexico, to the US, to the UK.

“When you’re using an international programme, what you’re eliminating is all of that inconsistency in the coverage, limits, the claims handling, the policy administration, and in that simplification of the process it allows you to better understand how your business functions.

“When you add a captive, that’s you taking complete control of your risk management solution. And usually what that does is that it reduces that total cost of risk for the organisation.”

Hensel said that an international programme can be as small as including just two territories, with the size and complexity increasing as more countries and lines are added.

Property, casualty and marine lines are the most common seen on HDI’s global programmes.

“Obviously, the challenge for these programmes is having the expertise and the knowledge of each jurisdiction that the local policy is needed,” he added.

“We have a system solution that allows us to manage international programmes and that also allows the client to see the international programmes within a system, within a software with up-to-date live data about their local policies.

“Secondly, we have experts in all the countries where HDI is present or one of our group companies is present. We have the local expertise that comes together on a producing office level, producing office being the country that administers the global programme.

“And with all these expertise together, we are able to handle the challenges and provide the solutions to have a compliant, number one, programme in place and also a programme that will meet the client’s needs.”

Listen to the full GCP Short episode with Jason Tyng and Marco Hensel on the Captive Intelligene website here, or or any podcast app. Just search for ‘Global Captive Podcast’.

GCP Short: An introduction to international programmes

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Jason Tyng, HDI Global
Marco Hensel, HDI Global

In this GCP Short, produced in partnership with HDI Global, Richard is joined by Marco Hensel, Senior Vice President and Underwriting Lead for HDI Global in the US, and Jason Tyng, ARM Vice President and Captive Lead.

Marco and Jason, who first appeared on the pod earlier this year when interviewed at RISKWORLD, give listeners a breakdown on how international programmes work, the respective roles for a captive and fronting partner, and the key elements to get right.

For more information on HDI Global, visit their Friend of the Podcast page on Captive Intelligence.

For the latest news, analysis and though leadership from the global captive market, sign up to the twice-weekly Captive Intelligence newsletter.

Anne Marie Towle adds Global Risk Management leadership to Hylant captive role

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Hylant has promoted Anne Marie Towle to CEO Global Risk Management, where she will lead the Global Risk Management team in addition to her responsibilities as CEO of Global Captive Solutions.

Under Towle’s leadership, the two divisions will work together to optimise project outcomes for the company’s largest and most complex clients.

“Bringing together our Global Captive Solutions and Global Risk Management divisions under one leader recognises the symmetry of the teams both in terms of customer size and complexity and the consultative process employed to serve them,” said Richard Hylant, president of the privately owned company.

“Under Anne Marie’s extraordinary leadership, we will continue to evolve how we serve these clients and help them strategically and efficiently manage their complex risks.”

The broker’s consultants will focus on risk related work including identification, quantification, mitigation and financing, to enable organisations to lower their total cost of risk and make best use of capital.

Hylant is among the largest privately held insurance brokers in the US offering risk management consultation, alternative risk financing services, business insurance brokerage, employee benefits brokerage and consultation, small business insurance and personal insurance services.

Hearing highlights: IRS totally fails to engage, 831(b) captives will close

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Service providers, lobby groups and regulators provided comments in a public hearing on the Treasury and IRS’ latest proposals concerning micro captive transactions on 19 July.

Captive Intelligence reported in April the IRS had proposed new regulations for “micro captives” – those making the 831(b) tax election – at the same time as obsoleting Notice 2016-66, having had it struck down by the courts in March 2022.

The proposed regulations for 831(b) captives initially divided opinion across America’s captive landscape, but there is a growing consensus that some of the proposals, such as the 65% loss ratio threshold, are a nonsensical criteria for identifying potential abuse of the tax election.

Under the Notice, the IRS proposed regulations which would see certain micro-captive transactions deemed “listed transactions” and other micro-captive transactions labelled “transactions of interest”.

The full proposed rules have been published on the Federal Register here, while EY published its own alert on 19 April.

Having reviewed the full transcript from the hearing, Captive Intelligence shares some of the standout contributions.

Steve Kinion, Oklahoma Insurance Department

When discussing the 65% loss ratio threshold Steve Kinion, captive insurance director at the Oklahoma Insurance Department (OID), noted that following 9/11, Congress recognised the “unique challenges” of insuring commercial enterprises against terrorism attacks and passed the Terrorism Risk Insurance Act (TRIA) in November 2002.

He said the fact that there are no terrorism acts should be celebrated.

However, he said that this would be an “unwelcome celebration” as under the current IRS proposals, “a lack of claims suggests an engagement in tax evasion or tax avoidance”. Therefore, he argued that the IRS proposal is contrary to TRIA.

“One of TRIA’s purposes is to encourage the coverage of terrorist risks by private insurance, so that businesses do not need to rely upon federal assistance,” he said.

“The proposal is simply a disincentive to ensure terrorism risks through a captive insurer.”

Kinion also noted that Oklahoma partially funds its firefighter employees’ pensions by taxes paid by captive insurers domiciled in the state.

“The consequence of the proposal’s adoptions would be the formation of fewer captive insurers, and those that exist today, some will dissolve in order to avoid becoming reportable transactions,” he said. “This results in fewer taxes paid to pension systems.”

Kinion referenced Oklahoma’s Insurance Commissioner, Glen Mulready, and said the Commissioner knows no one at the IRS desires that result.

“That is why he extends the invitation to IRS leadership to work together to identify the IRS’s concerns, as well as to address the unforeseen consequences, which I have just described that this proposal can present,” Kinion added.

He said the OID is willing to take the lead to formalise the process, which can take a number of forms of working together.

“It can be in the form of an NEIC, National Association of Insurance Commissioner, working group or other format.”

Mulready had previously called on the IRS to withdraw its Notice of Proposed Rulemaking (NPR) concerning micro captives and form a joint task force consisting of the IRS, regulators and representatives of the captive insurance industry.

James Perna, Law Attorney

Law attorney James Perna argued there is no doubt some bad actors in the captive industry, “just as there are bad priests, bad ministers, bad doctors, and bad lawyers”.

“But that does not mean that such professions or all small captives should be eradicated,” he said.

He noted that the Treasury and the IRS have had over 35 years to consult with industry experts, academics, lawyers, actuaries, underwriters, and accountants to develop safe harbours and best practices.

“The IRS has totally failed in this regard,” he said.

Perna said the Treasury and IRS are harming the American economy with their “misguided efforts” to eradicate micro-captives.

In relation to the loss ratio threshold, Perna referenced a recent AM Best graph showing the loss ratios of large commercial home insurance companies for the period of 2010 to 2022 for the US nationally and for California.

The US fluctuated from about 50% to 70% nationally and California’s loss ratios fluctuated from around 40% to 200%.

“Property & casualty loss ratio caused by acts of God, war, weather, accident, and chance cannot be as stable as the medical loss ratios that the IRS referenced in formulating its proposed regulatory loss ratio test,” he said.

“In making a comparison, the IRS is making a fundamental error, comparing apples to oranges to justify its presumptive biases.”

Perna said that the private bar had suggested that a few higherup individuals at Treasury and IRS are trying to accomplish by administrative devices what they were unable to convince Congress to do legislatively in 2015 and repeal section 831(b) and to shut down the captive industry.

“It is readily apparent that the IRS is trying to repeal by pretextual regulation what Congress has authorised, accepted, and approved,” Perna said.

“The IRS would throw out the baby with the bathwater, rather than develop reasonable standards in cooperation with the small captive insurance industry.”

Matthew Queen, Queen Firm

Lawyer Matthew Queen said that the proposals are unconstitutional on at least two grounds.

“First, it violates federalism because an attempt to govern the business of insurance conflicts with the McCarren-Ferguson Act which established that the business of insurance is State law,” he said.

“Second, this violates the intent of Congress and effectively strikes a whole section of the law passed pursuant to bicameral legislation.”

He said that along with the McCarren-Ferguson Act, Section 831(A) and B constitutes a large part of Congress’ vision, and the net effect of this transaction proposal will basically eliminate 831(b) captives.

“I believe that raises some issues with major questions doctrine because the enabling statute under the AJCA does not permit the IRS to unilaterally remove 831(b) for captive insurance companies just because of perceived abuses or some troublesome litigation,” he said.

Joe Magyar, Crowe LLP

Joe Magyar, partner at Crowe LLP, speaking on behalf of the National Automobile Dealers Association (NADA), referenced the IRS’ exemption to its recent proposals for certain consumer coverage arrangements.

He requested the IRS consider modifications that will better align this exception to the circumstances of the automobile dealer arrangements, “and thereby facilitate compliance without creating undue reporting hardships, where there is low risk of abuse”.

“The IRS examined these types of captives in the past, and determined there was no need to characterise them as listed transactions,” Magyar said.

He added that without the recommended changes, a number of legitimate captives will be subject to burdensome information gathering, testing and recording requirements.

“In circumstances where the dealership is technically, a transitory, a residual obliger under the contract due to various factors, NADA requests that, where the customer is the ultimate beneficiary, the dealer should not be considered an insured, within the meaning of the proposed regulations,” Magyar said.

He also noted that NADA urges the Treasury and the IRS to expand the type of consumer coverages listed in the exemptions to include coverages for diminished value.

“This is another coverage that is currently purchased by consumers, to cover the loss in value of vehicle may occur from a covered peril that does not result in a total lost vehicle,” he said.

SRS launches Benefit Partners, hires Jeff Fitzgerald

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Jeff Fitzgerald has re-joined Strategic Risk Solutions (SRS) as managing director of SRS Benefit Partners, a new division which will support the establishment and growth of group and individual employee benefit programmes.

Fitzgerald will be based in Charleston, South Carolina and he has more than 17 years’ experience in group and individual self-funded employee benefits captives.

“We continue to see significant growth in the use of group captives with demand from our partners for enhanced capabilities in development, program support and education,” said Brady Young, SRS CEO.

“Jeff has extensive experience in working with broker partners in the creation and management of these programs and we are excited to expertise to our existing management and consulting capabilities.”

Fitzgerald re-joins SRS from Innovative Captive Strategies, where he was vice president, employee benefits.

He previously served as associate director at Strategic Risk Solutions from 2008 to 2012.

“SRS is a leader in the captive industry and has been at the forefront in the use of captives for employee benefits,” Fitzgerald said.

“SRS, and its affiliates, have many of the components in place to provide a comprehensive offering to proactively address the challenges of this ever-evolving market.

“I’m pleased to be returning to SRS to help expand its presence in the captive market and bring my career back full circle.”

Plan design, control key benefits from MSL group captive strategy

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A medical stop loss group captive member of more than 10 years has shared their experience of utilising the self-insurance structure to fund and support their healthcare spend and improve care for employees.

Joan Enoch, human resources manager at Lift-All, was joined on an episode of the Global Captive Podcast by Mike Van Ham​​​​, senior vice president for health and wellbeing at Captive Resources, and Joe Parrilli, senior vice president for medical stop loss at Captive Resources, discussing medical risk management.

Lift-All is a Pennsylvania-based load securement manufacturer with five plants in the United States and around 250 employees.

Enoch described the company as an “early adopter” of group captives, having had success on workers’ compensation before considering medical stop loss.

Lift-All has been a member of Well Health Insurance Ltd since 2012. Well Health was originally formed in 2011 and is managed by Kensington Management Group in Cayman.

Enoch said one of the benefits of being a member of Well Health is getting more control over medical spend, often by sharing best practices with fellow captive members and putting the right plan design in place to ensure employees are getting access to the right wellness and preventative care.



“On our end we’ve had onsite wellness screening since 2007,” she said. “We get close to 85% of our employees participating in that.

“The value is they’re connected early on and understand what their personal risks are, based on their lifestyle or possibly what they inherited from their parents.

“In some cases, that just means getting different preventive screenings, as opposed to just waiting and letting something happen.

“When I think about overall health and safety, a big piece of that is understanding what you can do upfront and to that end, that’s a cultural issue that we need to make sure that we have in place. We’ve got that support from our other Well Health members as well.”

Captive Resources works with group captive members across various sectors and lines of insurance, including workers’ compensation and medical stop loss, with CEO Nick Hentges telling Captive Intelligence earlier this year $500m was added to the total group captive book in 2022.

In medical stop loss, Van Ham said the success of the group captive programmes is often driven by the motivation of its members to provide effective healthcare and wellness options to their employees.

“These are employers that are self-funded, they’re in control of their spend,” he said.

“They can take actions to mitigate that spend. So the ability to implement and share these ideas, it’s not only going to help Joan and Lift-All, and being able to report to her leadership around the cost savings and helping reduce their plan spend and trend, but cumulatively, this has an impact across the captive.

“All of these employers taking upon similar strategies, implementing those strategies, helps create efficiencies across the captive, which ultimately leads to the captive layer and the reinsurance layer taking on less risk.”

When asked if other organisations of a similar size to Lift-All, or under 1,000 employees, should consider a self-funded or group captive approach to healthcare, Enoch said the important point was to consider the bigger picture and strategize for the medium to long term.

Since joining Well Health in 2012, Enoch said they have had five years of no increases in overall healthcare spend.

“When I think about healthcare, we cannot avoid every accident or injury,” she added.

“Some cancer diagnosis are going to occur, so we just need to make sure that our plan allows for that to happen.

“We’re going to have hopefully more good years than bad years, and the stop-loss funding allows us to do that very well, to manage that cash flow and also protect us in the backend so if we do have a bad year, or if other Well Health members have a bad year, the rest of us are there to support that.

“But then when we have overall good years, we benefit from those savings collectively.”Listen to the full GCP Short discussion with Joan, Michael and Joe on the Captive Intelligence website here, or any podcast app. Just search for ‘Global Captive Podcast’ on Apple Podcasts, Spotify, Google Podcasts or any podcast platform.

HDI Friend of the Podcast

HDI’s captive services bring together a dedicated, highly experienced team of financial, actuarial and legal professionals to advise your company on implementing an international non-life captive programme. Customised solutions based on personal consultation and review of each company’s unique captive situation are our specialty.

  • More than 100 active captive programmes.
  • Global support through 30 producing offices.
  • Worldwide cover in more than 175 countries.
  • More than 25 years of captive experience.

KEY CONTACTS

Jason TYNG

ARM Vice President, Captive Lead

jason.tyng@us.hdi.global

MARCO HENSEL

Underwriting Lead, Senior Vice President

marco.hensel@us.hdi.global

Eric Joly-Pottuz

Head Centre of Excellence, HDI Global SE

eric.joly-pottuz@hdi.global

Marc Luginbühl

CEO, HDI Global SE, Switzerland

marc.luginbuehl@hdi.global

Oliver Davies

Director Distribution and Marketing, UK and Ireland

oliver.davies@hdi.global


HDI GLOBAL ON THE GLOBAL CAPTIVE PODCAST

Latam inflation drives captive interest in Puerto Rico

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Interest in captive formations in Puerto Rico in rising, particularly in South American countries battling extreme levels of inflation, Ruben Gely-Ortiz, president at Iron Shield II told Captive Intelligence.

Iron Shield II is an international reinsurer, domiciled in Puerto Rico, that operates as a segregated assets plan, similar to a protected cell company.

“As Puerto Rico develops as an insurance centre and gets more credibility, the interest in forming captives from bigger players is increasing,” he said.

“One of the biggest factors for new captive formations in Puerto Rico is inflation in Latin America. For example, the Argentinian currency is up 120% so we are providing a solution for economies that are not stable and helping insurers stabilise their reserves.”

Gely-Ortiz also highlighted the hardening of the commercial market as a main factor in captive growth in Puerto-Rico.

“We are seeing that reinsurance is deciding to not continue with some of these programmes, and the lack of reinsurance and commercial insurance is an opportunity for captives,” he said.

“Based on our target market, a big factor in increasing captive utilisation is inflation and devaluation of currencies.”

He said that there has been lots of captive interest from insurtech start-ups and technology companies.

“They’re expanding into new jurisdictions by using a segregated asset plan or a captive where they could then enter Colombia as a reinsurer, instead of having to raise capital to buy an insurance company in Colombia,” he said.

Gely-Ortiz noted that the domicile has historically been focused on US and Latin American businesses, “but we are trying to develop and get more captives from Asia and Australia”.

He noted that one of the main challenges the domicile is facing is the amount of time it is taking for captives to complete the application process.

“By Puerto Rican law, the Commissioner needs to respond within 60 days after the completion of a captive application,” he added. “But that’s definitely not the case, it’s taking almost a year.

“The Office of the Commissioner of Insurance (OCI) Puerto Rico is not dedicating the staff that the market deserves. Registration of captives as protected cells certainly should be within the 60-day timeframe.

“We hope that the reported increase in premium in the International Sector in 2022, well over 100%, will drive more attention from policymakers.”

Four new members voted onto VCIA Board

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The Vermont Captive Insurance Association (VCIA) has elected four new members to its board.

Voting was conducted virtually for the first time with Ian Davis, senior vice president for captive insurance at M&T Bank, Ryan Gadapee, shareholder at Primmer Piper Eggleston & Cramer, Cameron MacArthur, founder and CEO at AI Insurance, and Melinda Young, vice president of risk management Alberici Constructors, elected.

They will participate in their first VCIA board meeting in October.

VCIA was established in 1985 and provides both state and federal lobbying support for its nearly 400 members.

“On behalf of the entire VCIA Board, we are thrilled to add these new members who we know will bring new ideas and energy to the organisation,” said Tracy Hassett,  VCIA board chair and president of edHEALTH.

“It’s an exciting time as we are about to begin a strategic planning process to ensure that the VCIA remains the premier captive association and a major educational and networking resource for the entire industry.”

Kevin Mead, president of VCIA, said: “Ian, Ryan, Cameron, and Melinda, bring incredible assets to the VCIA Board.

“Not only that, they offer diverse perspectives that will be essential to our process, coming from the banking, legal, insurance software, and risk management, captive insurance fields, respectively.”

GCP Short: Medical risk management for group captives

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Joe Parrilli, Captive Resources
Joan Enoch, Lift-All Company
Mike Van Ham, Captive Resources

This GCP Short, produced in partnership with Captive Resources, is all about medical risk management and the benefit to group captive members. Richard is joined by:

Joan Enoch, Human Resources Manager at Lift-All Company, Inc, a member of the Well Health group captive

Mike Van Ham​​​​, Senior Vice President for Health & Wellbeing at Captive Resources.

And Joe Parrilli, Senior Vice President for Medical Stop Loss at Captive Resources.

Joan shares her first-hand experience of being a group captive member and some of the benefits her and her company get from specific medical risk management initiatives.

For more information on Captive Resources, visit their ⁠Friend of the Podcast page here⁠.

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