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AM Best affirms financial strength rating of Apogee captive

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 Vermont-domiciled Prism Assurance. The outlook for the ratings is stable.

Prism is the single parent captive owned by Apogee, one of the largest architectural design and construction companies in the United States.

AM Best assesses Prism’s business profile as limited as the company provides very specific lines of coverage to Apogee, although its risks do have a level of geographical diversification reflecting the scope of the parent’s operations.

AM Best said the company is interwoven into Apogee’s enterprise risk management programme and, as a result, the captive displays excellent risk identification and mitigation processes.

Prism works cohesively with business units across the overall organisation to reduce claims severity and frequency.

The ratings reflect Prism’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

Prism’s balance sheet strength assessment of very strong is supported by risk-adjusted capitalisation at the strongest level, as measured by Best’s capital adequacy ratio (BCAR).

The company also has strong liquidity measures and affords financial flexibility through the support from its parent.

The adequate operating performance assessment reflects Prism’s five-year average operating ratio that compares suitably with AM Best’s workers’ compensation composite, despite intermittent volatility.

The captive continues to generate consistent annual net profits primarily from a steady flow of royalty and investment income, which adequately offsets any volatility in underwriting and generally allows for healthy profits each year.

AM Best said Prism’s operations also benefit from its inherent low expense structure as a captive, driving an underwriting expense ratio that is a fraction of its peers’ average in comparison.

AM Best affirms ratings of BNY Mellon’s captives

Luke Harrison
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AM Best has affirmed the financial strength rating of A (excellent) and the long-term issuer credit ratings of “a+” (excellent) of Bermuda-domiciled BNY Trade Insurance, and New York-domiciled The Hamilton Insurance Corp. The outlook for the ratings is stable.

BNY Trade and Hamilton are both single parent captives owned by ultimate parent, BNY Mellon, a global financial services company.

Both captives provide comprehensive reinsurance coverage and products to their parent and are both important components of BNY Mellon’s overall risk management framework.

AM Best said both BNY Trade and Hamilton benefit from the parent’s robust policies and procedures in the areas of risk management, corporate governance and compliance.

BNY Trade’s rating reflect its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The ratings of Hamilton reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate ERM.

BNY Trade’s balance sheet strength assessment of strongest is supported by its risk-adjusted capitalisation being at the strongest level, as measured by Best’s capital adequacy ratio (BCAR).

Hamilton’s very strong balance sheet strength assessment is supported by risk-adjusted capitalisation at the strongest level, as measured by BCAR, strong liquidity measures exceeding industry composite averages, and benefits from the financial flexibility and support from its parent.

The operating performance of strong for both BNY Trade and Hamilton reflects favourable combined ratios, driven by excellent loss history and low expense structure.

GCP Short: edRISK launches property, liability programmes

Richard Cutcher
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GCP Short: edRISK launches property, liability programmes
Tracy Hassett, edRISK
Prabal Lakhanpal, Spring Consulting Group

In this GCP Short, produced in partnership with ⁠Spring Consulting Group⁠, Richard welcomes Tracy Hassett, president and CEO of edRISK, back onto the podcast.

⁠edRISK⁠ is a sponsored captive owner in Vermont which serves its educational institution members on a growing range of business insurance lines.

Originally formed as a group captive to support its members in reducing health insurance costs, on 1 June it went live with two new programmes for property and general liability and educators legal liability.

We are also joined by Prabal Lakhanpal, senior vice president at Spring Consulting Group, who are long term partners of edRISK and have worked closely on the restructuring and launch of these new progammes.

Tracy and Prabal talk about the evolution into a sponsored captive structure, why and how that was done, and explain why edRISK has branched out from just offering medical stop loss.

Tracy originally featured on the Global Captive Podcast in September 2020 on ⁠GCP #38⁠.

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.

Apollo launches first Captive Syndicate at Lloyd’s

Richard Cutcher
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Apollo launches first Captive Syndicate at Lloyd’s

Captive Syndicate 1100 has been launched at Lloyd’s of London, to be managed by Apollo Syndicate Management Ltd, and is the first Captive Syndicate in the market since the turn of the century.

Captive Intelligence has reported previously on the Lloyd’s captive project and we understand several large multinationals have had preparatory talks of establishing a syndicate within the historic insurance market.

Despite press reports at the start of the year that the first formation was imminent Lloyd’s CEO John Neal told Captive Intelligence during a press conference in March that they were “not in a hurry” to issue the first licence.

Apollo has now confirmed that it has formed the Captive Syndicate in partnership with a “major global client”.

“Establishing the first captive syndicate is a great achievement for our client, Apollo, and our industry,” said David Ibeson, group CEO of Apollo.

“We are extremely proud of this milestone and the way in which it reinforces Apollo’s reputation for the delivery of market-leading innovation at Lloyd’s.”

The client in question has not been named, but Captive Intelligence understands it is a major multinational technology company which already own captives in other jurisdictions.

Captive Intelligence also understands that Marsh has been working closely with Apollo and the client on the new vehicle and captive strategy.

Dawn Miller, commercial director at Lloyd’s, said: “We are delighted to welcome Captive Syndicate 1100, which is the first syndicate to be launched under Lloyd’s revised Captive syndicate model.

“As part of our ongoing work to provide specialist risk solutions for our customers, we have sought to align our captive structure with the needs of third parties seeking access to operational benefits through Lloyd’s global insurance expertise, licence network and financial strength ratings.

“We look forward to welcoming further businesses to our captive platform in the near future.”

Captive backed tenant programme delivering market leading product for Extra Space

Richard Cutcher
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Captive backed tenant programme delivering market leading product for Extra Space

Implementing a tenant programme that is run by the group’s captive, rather than provided by the commercial market, has been key in providing Extra Space more control over their own product and serve customers better.

Extra Space Storage is a publicly listed real estate investment trust that has 3,700 storage properties across 42 states. This amounts to 2.5 million storage units and 283 million rentable square feet.

Speaking on the Global Captive Podcast Kacey Kalian, VP of risk management at Extra Space, said the company previously used a third party product to provide tenant insurance to its customers with Extra Space taking a “small cut” of the premium.

In the mid-2000s the company was growing quickly and wanted to take more control over the insurance it offered to its customers.

“We wanted to control the process and make sure we were creating something that was really unique and beneficial for our tenants,” Kalian said.

Jason Flaxbeard, executive managing director for alternative risk at Brown & Brown, has been a long-time consultant to Extra Space on its captive and said while control is the ultimate objective, ensuring your compliant in offering a customer product is key.

“You’re selling a product to an individual member of the public, so we have to be compliant from a licensing perspective,” Flaxbeard said on the podcast.

“We have to offer an A-rated product and we have to ensure that Extra Space’s interests are aligned with the customer’s interest on the backend. The captive allows us to do that because we are the ultimate risk taker on any one of those programmes or for any individual.”

Today Extra Space uses a fronting partner and reinsures 100% of the tenant risk.

“It’s in our own best interest to make sure that we invest in good loss control practices, that our tenants’ goods are always safe and protected because ultimately we are paying out 100% of those claims,” Kalian added.

“It hits our bottom line. If we have a big hurricane or if we have a big fire, that’s money that’s coming directly out of our pockets via the captive.”

Bobby Mayer, vice president at Brown & Brown, specialises in tenant insurance programmes and works closely with Extra Space on their structure.

“With traditional insurance you’re really just worried about one person, but with this type of product there’s two groups you have to consider – the landlord and the tenant,” Mayer said.

“What we try and do and what I think the trick is to these programmees is design something where everyone wins.

“It’s easy to use for the tenant, it’s good for Extra Space because it encourages good behaviours and generates a revenue for them. And the captive becomes that tool that allows you to control that and really deliver on it.”

Kalian said they have been able to expand and tailor the coverage as the environment changes or different challenges emerge.

For example, Extra Space has been able to add flood and pest coverage to its list of perils and Kalian believes today they “probably have the most comprehensive insurance programme of any self-storage company”.

“It has no deductible and it’s just relatively cheap in terms of costs so the majority of our tenants do decide to take that product,” he added.

“If you think about filing a claim with your homeowner’s insurance company, any time you do that your rates are going to go up and there’s usually a large deductible associated with it.

“We’ve created something that is unique and also affordable and very easy to use. It’s very easy to file a claim. And from a customer service perspective, it just provides a great product for in the unfortunate circumstance that someone might have an issue at one of our properties.”

Listen to the full 23-minute Global Captive Podcast discussion about Extra Space’s captive insurance strategy here on Captive Intelligence or any podcast app. Just search for ‘Global Captive Podcast’.

Non-profits and charities look to captives to negate rising costs

Luke Harrison
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Non-profits and charities look to captives to negate rising costs
  • Tough commercial market for not-for-profits and public entities
  • Captive frequently used to fill growing gaps in coverage and raise capacity
  • Emerging risks and liability insurance a particular challenge
  • Internal and stakeholder buy-in can be slower than in the private market

Public entities, non-for-profits, and charities have long been common utilisers of captive insurance structures, but they are increasingly looking towards captives as a means of addressing emerging risks, stifling rising costs and mitigating a lack of capacity in the commercial market.

A common challenge faced by a number of these organisations when utilising captives is the capital requirements needed to fund the formations.

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AM Best assigns rating to DSLD Homes captive

Luke Harrison
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AM Best has assigned a financial strength rating of B++ (Good) and a long-term issuer credit rating of “bbb” (Good) to South Carolina-domiciled Quasar Insurance Company. The outlook assigned for the ratings is stable.

Quansar is a single parent captive formed to provide liability insurance to its sister affiliate, DSLD Homes, and its other affiliated companies.

The captive offers nine different coverages, with general liability and subcontractor default consisting of approximately 80% of the business.

DSLD is a large, privately held home builder that specialises in residential construction throughout Louisiana, Southern Mississippi, Alabama, Florida and Texas.

The captive is managed by a third-party captive manager in collaboration with the senior management team.

Risk management of the captive falls under the scope of the parent, which has implemented an active risk management approach.

Management evaluates top risks and mitigates severity through active risk management.

Best practices include stringent construction processes, annual insurance reviews and bi-monthly, in-person senior management meetings to discuss current and emerging issues.

AM Best said the captive does not currently utilise reinsurance partially offsetting the positive factors above.

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

Quasar’s overall balance sheet strength assessment is supported by its strong level of risk-adjusted capitalisation, as measured by AM Best’s capital adequacy ratio (BCAR), as well as a conservative investment portfolio and adequate reserves and liquidity.

This assessment is partially offset by no use of reinsurance to protect surplus in the event of natural catastrophes and the high limit offering relative to the captive’s surplus.

Quasar’s adequate operating performance is primarily based on audited results over the most recent five-year period, and the company’s ability to execute its strategic business plan and meet forecast operating results.

The captive has reported strong results in recent years, primarily driven by underwriting and investment income, supporting the company’s surplus growth.

The captive’s results are forecast to remain adequate over the next five years with projecting overall earnings in all years.

Government Entities Mutual premium triples over last five years

Luke Harrison
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Government Entities Mutual premium triples over last five years

The premiums received by Washington DC-domiciled Government Entities Mutual (GEM) have tripled over the past five years as government bodies counter rising costs and a lack of capacity brought about by the hard market, according to Andrew Halsall, president and CEO at GEM.

GEM is a mutual reinsurer consisting of risk pools or captive insurers comprised of public entities in the United States.

The mutual offers workers’ compensation reinsurance, where it provides a buffer layer of up to $2m between the retention of each pool and where the excess insurer attaches.

GEM also offers general and auto liability coverage, providing to $10m worth of cover.

“We then buy retrocessional reinsurance mainly from the London markets,” Halsall told Captive Intelligence. “We have several Lloyd’s syndicates on the panel and a couple of corporate reinsurers.”

Halsall said during the hard market members experienced a reduction in capacity from their incumbent reinsurers and prices skyrocketed.

“GEM was able to step into that void and provide more coverage and stability in pricing to existing members,” he said. “We also added five new members.”

“As a result, over the last five or so years we have more than tripled our premium income and grown our surplus significantly.”

Halsall said growth has also presented a certain amount of risk for the mutual.

“Especially if there’s a temptation to open the floodgates and accept all comers,” he said. “We have a cautious approach to growth.”

All members of GEM each represent multiple underlying government entities.

“The risk is already diversified by the stage that it reaches us,” Halsall said. “We don’t take on individual entities like large cities as members.”

“They represent a concentration of risk that would undermine our portfolio. In any case, large cities generally self-insure and buy excess insurance.”

Halsall said there were several reasons Washington DC was chosen at GEM’s captive domicile.

“First of all, there is an implied neutrality so if we’re attracting members from different states, we don’t necessarily want GEM to be already domiciled in a State which may imply some kind of bias toward that member,” he said.

“The DC regulators have also been very reasonable to deal with. They have very high standards, but they are also very approachable.”

GCP Short: The Extra Space Storage captive evolution

Richard Cutcher
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GCP Short: The Extra Space Storage captive evolution
Kacey Kalian, Extra Space
Jason Flaxbeard, Brown & Brown
Bobby Mayer, Brown & Brown

This GCP Short, produced in partnership with Brown & Brown, looks in depth at the evolution and growth of the pure captive owned by ExtraSpace Storage.

Extra Space is a publicy listed real estate investment trust that invests in and manages self storage facilities and has grown incredibly quickly in recent years, as you will hear.

While at RISKWORLD in San Diego earlier this month, Richard sat down with Kacey Kalian, VP of risk management at ExtraSpace, alongside his captive managers and consultants Jason Flaxbeard and Bobby Mayer, of Brown & Brown.

Kacey shared the journey of ExtraSpace, both as a business and captive owner, and explained how the captive strategy has been a key business enabler and profit maker in its own right for the company.

The trio also discuss, in depth, how its tenant insurance programme works and some keys to success.

For more information on Brown & Brown and its captive management and consulting services, visit its Friend of the Podcast page.

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

Solvency II reform no “revolution” but greater proportionality welcomed

Luke Harrison
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Solvency II reform no “revolution” but greater proportionality welcomed
  • Greater regulatory proportionality expected across EU member states
  • Lighter touch approach to ORSA and SFCR reporting requirements
  • Reforms could encourage more formations within the European Union
  • Welcome exemption from climate change reporting

There is hope that Solvency II amendments will allow for greater proportionality in the regulation of captives domiciled within the European Union (EU), but the proposals stop short of giving captives their own classification.

Since 2016 insurers and reinsurers, including captives, have been governed by the EU Solvency II Directive.

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