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Arizona assessing statute updates on dormancy, minimum capitalisation, and fees

Luke Harrison
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Arizona is considering changes to its legislation that would allow captives to register as dormant, in addition to reducing minimum capitalisation requirements for captives that are not single parent.

The Arizona Department of Insurance and Financial Institutions licensed 17 new captives in 2023, compared to 14 in 2022, taking its year-end total to 176.

“Our statute as well as our regulations have remained largely the same for many years,” Victoria Fimea, Arizona Department of Insurance and Financial Institutions, told Captive Intelligence.

“One of the issues we are looking at now that we’ve grown and have more captives domiciling here in Arizona, is whether to allow dormancy.

“We may also look at whether we should adjust the statutory minimum capitalisation for captives other than pure captives.”

Allan Smith, client service leader at Marsh Captive Solutions, said the State is trying to be proactive, recognising that captives can be a good alternative risk financing strategy, not just for very large companies.

“The goal is to update the statutes to help attract companies of different sizes to this tool,” he told Captive Intelligence.

Arizona is also exploring the possibility of changing the date when captive fees are due to be paid to the Department of Insurance and Financial Institutions.

“Right now, it’s due 90 days after the end of a captive fiscal year, but we may move that due date for all captives to a specific date in the Fall,” Fimea said.

“The reason for this potential change is the State’s fiscal year, and how long we must use the renewal fees to support the captive insurance division.”

Smith said the proposed changes to the collection date has a lot to do with when the fees are collected relative to a captive’s budget cycle.

“The ability to collect at a different time frees them from a budget process perspective,” he said.

“It was discussed with the Arizona Captive Insurance Association, and we are in support of their position to make that modification, and we think that it will pass.”

Captive Intelligence will publish a Long Read later this week analysing Arizona’s broader captive landscape.

Fitch affirms ‘BBB’ rating of Vale S.A’s captive

Luke Harrison
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Fitch Ratings has affirmed Monticello Insurance Pte’s insurer financial strength (IFS) rating at ‘BBB’ with a stable rating outlook.

Monticello is a Singapore-domiciled captive owned by Vale S.A., a Brazilian multinational corporation engaged in metals and mining and is one of the biggest logistics operators in the country.

Fitch considers Monticello a core captive of Vale S.A., meaning its insurer’s rating is linked to the parent’s rating, and its (IFS) rating is equal to the parent’s (issuer default rating) IDR. 

Vale has financially supported Monticello when needed, ensuring Monticello’s solvency and viability through revolving loan agreements, letter of credit to fronting insurers, and capital injections.

The last major injections were $241m in 2012 and 2013, but there has since been little need for that amount of support.

The captive is protected from extremely large losses through reinsurance contracts, and the large contracts are well diversified across an adequate number of mostly ‘A’ rated reinsurers.

Due to the nature of the company, the captive writes coverages that tends to be low frequency and high severity, which generally exhibit higher volatility of ultimate losses from year to year and can affect the valuation of reserves.

In 2023, the captive continued to show good profitability, with a return on average equity of 12.7% and a profit of $39.2m in 2023 ($48.7m in 2022), with the loss ratio being the main driver of profitability.

Despite the good performance in 2023, Monticello’s results remain very volatile due to the nature of the risks covered.

Monticello does not have a formal investment policy, while the main investment is in the form of an uncommitted revolving inter affiliate loan facility to Vale, which can be redeemed in the short term and the rest is mainly held in cash.

Kindstedt promoted to president of Advantage Insurance Management

Richard Cutcher
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Kindstedt promoted to president of Advantage Insurance Management

Advantage Insurance has promoted Christina Kindstedt to president of Advantage Insurance Management (USA) LLC.

The independent captive manager provides services in the United States and offshore and has offices in Florida, South Carolina, Cayman Islands, Puerto Rico and Texas.

Kindstedt recently told Captive Intelligence that Advantage is considering further expansion by establishing offices in Tennessee and North Carolina, having recently set up shop in Bermuda.

After fourteen years at Willis where she built and led its Risk Retention Group (RRG) practice, Kindstedt joined Advantage Insurance in 2017 to open its office in Vermont.

“We recognise Christina’s contribution and are thrilled to give her an elevated platform to do more,” said Advantage CEO William Buell.

“With her new responsibility to develop and execute growth strategies, we expect Christina to replicate her past successes and take Advantage to the next level in the alternative risk transfer industry.”

Kindstedt believes one of the key reasons behind the company’s growth is its policy to not outsource work and instead keep its functions in-house.

Since her appointment, Kindstedt has built a team of seasoned professionals to manage all types of alternative risk transfer vehicles with total annual premium exceeding $3bn.

AM Best affirms rating of Quanta Services 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 Texas-domiciled Quanta Insurance Company. The outlook for the ratings is stable.

QIC is a single parent captive owned by Quanta Services, a specialised contracting services company, delivering infrastructure solutions for the utility, communications, pipeline and energy industries.

On a direct basis, the captive writes workers’ compensation, commercial auto and general liability coverages to its parent and affiliated entities on an occurrence basis.

QIC’s captive orientation not only affords the company with ready access to business, but it also benefits from its parent’s extensive training, fleet management, loss control initiatives and workplace safety.

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

Christina Bell to lead Davies’ captive operation in Guernsey

Richard Cutcher
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Christina Bell to lead Davies’ captive operation in Guernsey

Experienced captive manager Christina Bell will join Davies later this year  as executive vice president for the firm’s captive management division in Guernsey.

Bell, who has 35 years’ experience across the international insurance sector in markets including Bermuda, Zurich and London, has most recently served as an executive director for Aon Insurance Managers Guernsey since 2019

Davies launched its first captive management office in Europe in 2021 when it received a licence in Guernsey and in May last year acquired the insurance management services portfolio of Ortac Underwriting Agency to boost its presence on the island.

In her new role, Bell will also be appointed to the board of Davies Management Services (Guernsey) Limited and lead the day-to-day operations of the Guernsey captives team.

This will include developing business strategy and growth plans, whilst aligning with Davies’ prominent multi-jurisdictional captive operations including Bermuda and the US.

Bell will report to Nick Frost, President – Captive Management, Davies, and Steven Crabb, CEO Insurance Services, Davies.

“We are delighted to welcome Christina to the team,” Crabb said.

“Her extensive international risk management experience will strengthen our captive management team, while also adding to our global capabilities and bring new opportunities to the table.”

Frost added: “As the market continues to develop, it is an important time for Davies to grow with favourable market conditions.

“We are extremely excited for Christina to join us and not only bring her years of expertise, but also open new avenues for Davies in the captive market.”

Bell is also currently chair of the Captive Committee at the Guernsey International Insurance Association (GIIA).

Artex adds Bee Insurance Management to Malta business

Richard Cutcher
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Artex adds Bee Insurance Management to Malta business

Artex has expanded its Malta presence by completing the transition of Bee Insurance Management into its Artex EMEA business.

Artex, owned by broker Arthur J. Gallagher, acquired Ireland captive manager Allied Risk Management in May 2023 and the addition of Bee’s portfolio further boosts its European footprint.

Simon Camilleri, former managing director of Bee Insurance, is now executive director at Artex, will continue overseeing client service and support the Artex EMEA business development team.

“Transitioning this book of business to Artex EMEA marks another step in Artex’s growth and global expansion journey, enhancing our resources, expertise and range of services for the benefit of our clients,” said Paul Eaton, CEO of Artex EMEA.

“The Bee team brings capabilities that complement our existing service offerings and build upon the foundation that has made our Malta team so successful. We are enthusiastic about the future and look forward to achieving more success together.”

Camilleri said: “The transition to an international organization will help our current and future clients take advantage of the expertise, knowledge and wider ranging services which are afforded by a leading global insurance manager.”

National Grid captive affirmed ‘Excellent’ by AM Best

Richard Cutcher
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The Isle of Man pure captive owned by National Grid plc has had its financial strength rating affirmed ‘A-‘ (Excellent) and its long-term issuer credit rating affirmed as “a-” (Excellent).

National Grid Insurance Company (Isle of Man) Limited provides a broad range of coverage to its parent including for property damage business interruption (PDBI), casualty and cyber.

Despite “significant losses on its PDBI book in financial years 2021 and 2022”, AM Best said the captive had a healthy five-year (2020-2024) weighted average combined ratio of 75%.

“Prospectively, AM Best expects the captive’s underwriting performance to be favourable over the longer term, albeit subject to potential volatility given its high net line sizes relative to its premium base,” the ratings agency said.

AM Best stated that the captive’s balance sheet is “very strong” with the ratings also reflecting its adequate operating performance, neutral business profile and appropriate enterprise risk management.

UK, Lloyd’s progress could tempt McGill into captive management

Richard Cutcher
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UK, Lloyd’s progress could tempt McGill into captive management

While McGill & Partners is focused on broking for large, complex accounts, the prospect of a UK captive regime and further progress at Lloyd’s could tempt the firm into offering captive management services domestically, according to Stephen Cross, group COO & head of innovation & strategy.

Cross was speaking in an exclusive interview on the Global Captive Podcast regarding the scale of McGill’s ambitions in the captive sector, and whether entering captive management is part of the plan.

To date, the broker has had success on the reinsurance broking side for large captives, but Cross has extensive experience, from his time at Aon and International Risk Management Group (IRMG), in captive management and broader captive services.

Speaking on GCP #106, he said captives “is a business that I love,” but explained that to have a serious captive management offering you really need to be in multiple domiciles around the world, which makes it much harder for new entrants.

“Building out a captive management business, in reality, for the large global corporate sector would require you to have a presence onshore United States, probably Vermont at a minimum, Bermuda as the original home of all captives, possibly Cayman for medical malpractice,” Cross said.

“You certainly need at least one or two locations in Europe, maybe something in Asia. So that’s quite a lift for us to do. As I say, we’re just over 500 people right now.

“It’s quite a lift and there’s not a lot of managers left to buy, so buying our way into that space would be a little bit more challenging.”

Cross, however, is a big fan of the Lloyd’s Captive Syndicate proposition and suggests that project, in combination with a potential wider UK captive regime, could provide an opportunity to move into management in the UK.

“I do think that what Lloyd’s is proposing is quite fascinating and we do obviously a lot of business with Lloyd’s,” he said.

Captive Intelligence reported in June the first Captive Syndicate had been launched at Lloyd’s, managed by Apollo Syndicate Management Ltd with additional captive consulting and support provided by Marsh.

“I do think for London and for what Lloyd’s has to offer, there’s a definite opportunity there,” Cross added.

“I’d probably give you a ‘maybe’ for McGill & Partners there for sure. It would be interesting to us.”

As to whether every large broker should be abe to offer captive management services, he said he did not believe it was an imperative and praised the options already available from broker-owned managers and independents.

“I don’t think any broker needs to have a captive management presence, I really don’t,” Cross said.

“I look at SRS, and I look at a number of other independent managers, and they’re superb at what they do.

“Then I think about the broker-owned managers, again, they do a great job and they can bring a lot more elements to that management if they choose to.”

Solvency II reform should bring more consistency – FERMA

Richard Cutcher
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Solvency II reform should bring more consistency – FERMA

The Federation of European Risk Management Associations (FERMA) is hopeful there will be more regulatory consistency between EU captive domiciles once Solvency II reform is implemented, but questions remain over implementation.

Captive Intelligence reported in April the European Parliament had passed proposed Solvency II reforms that introduced regulatory concessions for “small and non-complex undertakings”, which the majority of captive (re)insurers are expected to fall into.

Speaking on the latest episode of the Global Captive Podcast, FERMA’s head of EU affairs Charles Low and Laurent Nihoul, head of the Federation’s captive committee, explained the background and journey of the reforms and their hopes for its tangible benefits.

Low explained that while the original Solvency II regulation “explicitly defined” captives in Article 13 of the Directive, and instructed national supervisors to apply requirements according to the nature, size, and complexity of the regulated entity, this was not always the case.

“What was experienced by FERMA, its members and others, was that in some cases, captives were treated in the same way, prudentially, as basically large insurers,” he said.

“And that’s stretching it out to the point that captives, conceptually, were kind of unfamiliar territory to many regulators.”

Nihoul explained that there have been inconsistencies between even established captive domiciles as to how Solvency II had been applied.

“What we have experienced since the introduction of Solvency II is that proportionality was not really applied in a consistent way, depending on the country,” Nihoul said.

“In Ireland, for instance, with the Own Risk Solvency Assessment (ORSA) or in Luxembourg for quarterly reporting, the criteria were not really consistent. It was really left to the member states to define what was really proportionality and how it should be applied.”

Nihoul added that he hoped that the introduction of “small and non-complex undertakings” would bring “much more clarity and consistency across member states”.

“Now we have a clear principle, which we believe will bring more consistency across the different countries in Europe and more predictability,” he added.

“The predictability principle is really crucial because we have now in the new text a list of clear criteria, with which any insurance or reinsurance company should comply with to be considered as a small and non-complex entity.

“Even more importantly, there is now a derogation for captives because the texts say that captive companies can be classified as small and non-complex entities even though they do not comply with all these criteria, provided that they comply with a couple of other criteria.”

With the Solvency II reforms passed, the next big question and focus for the European market is implementation.

It is anticipated that supervisory authorities will begin implementing the changes from 2026, but member states will need guidance from EIOPA on the next steps.

“All of the various 27 member states in the EU are then charged with putting that EU directive into their own national law and then determining on how they will implement it within the constructs of their national legal systems,” Low said.

“There invariably will probably be some questions, some patches of uncertainty and so forth. So the implementation part is going to be a big open question.”

Listen to the full podcast discussion with FERMA’s Charles Low and Laurent Nihoul on GCP #107 here, or on any podcast platform. Just search for ‘Global Captive Podcast’.

Artex launches Vermont PCC

Richard Cutcher
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Artex has established a Vermont protected cell company (PCC), Artex Axcell PCC (Vermont), Inc, to provide organisations of all sizes an alternative platform for risk transfer.

Vermont has become increasingly popular as a jurisdiction for cell business in recent years, with 39 individual cells approved in the State during 2023 and its year-end number of protected and incorporated cells totaling 534.

Artex said its new PCC will facilitate protected and incorporated cells.

“PCCs have been one of the most important evolutions in the captive insurance marketplace in recent years, and we are thrilled to serve clients through our latest Artex Axcell PCC,” said Jennifer Gallagher, CEO of Artex, North America.

Barry White, executive vice president for sales, analytics and advisory for Artex, North America, said: “With Vermont now established as the largest captive domicile globally, we selected Vermont as part of our U.S. onshore strategy but also to complement our global offering.”

Artex said utilisation of the PCC gives clients the flexibility to begin a captive strategy before potentially growing into a single parent captive, while it can also provide access to the reinsurance market and capital markets and provide cash flow benefits.

Artex already owns cell company facilities under its Axcell brand in multiple domiciles including Guernsey, Bermuda and Cayman.

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