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GCP #94: Can the UK become a captive domicile?

Richard Cutcher
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GCP #94: Can the UK become a captive domicile?
Caroline Wagstaff, London Market Group
Charles Winter, Aon
Matthew Latham, Marsh

In episode 94 of the Global Captive Podcast, supported by the EY Global Captive Network, Richard debates the potential for the UK to become a captive domicile after the Government hosted a roundtable on the topic.

02.18 – 26.00: Caroline Wagstaff, CEO of the London Market Group, which is lobbying hard for the initiative, and Charles Winter, Head of Strategic Risk Consulting at Aon Global Risk Consulting, discuss the background and analyse its potential for success.

27.25 – 44.00: Matthew Latham, formerly of AXA XL, Risk Transfer Leader in the Financial Solutions Group at Marsh, discusses reinsurance trends and solutions for captives, parametric policies and the legacy environment.

Read the Captive Intelligence coverage of the UK captive domicile developments here, and Airmic’s response here.

Stay up to date with all major developments in the captive market by signing up to the twice-weekly Captive Intelligence Newsletter.

Momentum continues on feasibility studies – Aon’s Elizabeth Steinman

Luke Harrison
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Momentum continues on feasibility studies – Aon’s Elizabeth Steinman

Elizabeth Steinman, managing director of risk finance & captive consulting for the Americas at Aon, is probably involved in twice the number of captive feasibility studies than she was four years ago, with many clients revisiting the captive concept for the second time.

“The last few years have just been really busy,” she told Captive Intelligence.

Steinman said a lot of the studies she is involved in are refresh studies, occurring when the broker has already provided a captive feasibility study for a company a few years prior.

“Now they are coming back and realising they need it,” she said. “We then refreshed that study and the majority of them are moving forward with the captive formation.”

Steinman said the increase in studies is largely because each year for around the past five, there has been an “increase on top of an increase” when it comes to commercial market pricing.

“It’s very frustrating, and our clients feel is unwarranted,” she added.

“They’re also getting their terms and conditions tightened. Some are being required to take higher deductibles, and some markets are leaving the property arena altogether.”

Steinman said that when terms and conditions are being taken away, the captive can write policies to fill the gaps.

“It can also fill in parts of the tower where they feel it is out of whack with the rest of the tower pricing wise, or if they cannot fill the tower because of capacity issues,” she said.

Steinman said that if a company forms a captive regardless of what happens at renewal, they are then in a good position to be “nimble and pivot” to either add coverage or do what they need to do in order to make their renewal “look like they want it to”.

She also said that a client might be “very active” in utilising the captive for a few years, but then they might have a year where they don’t write any new business because they “just don’t need it”.

“Then the business that is in there is still churning along, but then it is there when you need it, and you will inevitably need it it given the fluctuations in the insurance market.”

Steinman said some of the first risks US clients put into a captive include workers’ compensation, general liability, and auto liability.

“They have the more predictable losses, and you get good risk diversification, especially if you are going to put in something like cyber or property, which have a completely different risk profile,” she explained.

Steinman said medical stop-loss is another popular line that works well for clients who have good loss experience.

“We find that if they take a portion or all of the medical stop-loss risk, they can experience savings by not paying premium to the market, and instead just paying for the claims that fall within that layer,” she said.

When it comes to domicile selection, Steinman said she starts by having a discussion with clients to “narrow down the playing field”.

“We come up with around six domiciles based on their objectives, and what’s important to them,” she said.

She highlighted that Aon has a detailed matrix where the broker scores each domicile and their different attributes.

“We also have a client score and that is in importance order, so we take into account what they want,” she said.

The top domiciles usually end up as the preferred choice.

“Other domiciles of choice tend to be the domicile where the parent company is based for potential tax reasons or convenience,” she added.

Hackett returns to captives, Hylant makes four hires

Richard Cutcher
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Hackett returns to captives, Hylant makes four hires

Erin Hackett has joined Hyland Global Captive Solutions as an account executive, with the captive manager making four new appointments.

In addition to Hackett, Tara Albright joins as senior captive account manager, Brandon Casler is a captive account manager, Frank Aubrey joins as a captive underwriter and compliance specialist.

Hackett worked for Crowe in Burlington, Vermont from 2015 to 2021, finishing as an audit senior manager before joining Vermont Mutual Insurance Group as controller.

“I am excited about the continued expansion and growth of our team,” said Anne Marie Towle, CEO of Global Risk and Captive Solutions.

“We are always looking for the best talent in the industry and finding new ways to grow and innovate.”

Albright has more than 20 years of experience in insurance, tax and compliance. She will work with clients to develop strategic solutions to their wide range of complex situations.

Casler joins with accounting experience in full-service resorts, not-for-profit, government and transportation. He will support the accounting for clients’ captive insurance entities and ensure compliance with all legal regulations.

Aubrey has more than 15 years of underwriting experience and will collaborate with clients and internal teams to identify and recommend insurance solutions for captives.

The four additions join a growing Hylant team, which recently promoted Dawn Dinardo to managing director of captive management operations and Amit Hapani to director of India operations.

In August, Hylant 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.

Hylant promotes Dawn Dinardo and Amit Hapani

Luke Harrison
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Hylant has promoted Dawn Dinardo and Amit Hapani to managing director of captive management operations and director of India operations, respectively.

In her new role, Dinardo will oversee the captive management operations business unit, guiding strategy, operations and team development.

She previously held the position of director of captive operations.

In Hapani’s new role, he will guide strategy and oversee the day-to-day operations within the emerging market.

He previously held the position of senior account manager at the company.

“We look forward to seeing more success in Dawn’s and Amit’s future with the Hylant Global Captive Solutions team,” the company said.

In August, Hylant 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.

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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