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Captive Intelligence provides high-value information, industry analysis, exclusive interviews and business intelligence tools to professionals in the captive insurance market.
European cyber mutual granted insurance licence
The cyber insurance mutual formed by a group of European corporates has received its insurance operating licence from the Belgian regulator and will begin commercial operations on 1 January, 2023.
MIRIS (Mutual Insurance and Reinsurance for Information Systems) has been created by industry veterans Danny Van Welkenhuyzen, Mark Pollard and Philippe Obert and will provide additional cyber insurance capacity for its members.
“Innovation of this level of importance in the insurance industry is unusual,” said Danny Van Welkenhuyzen, MIRIS CEO.
“The National Bank of Belgium, as regulator, needs to verify all aspects rigorously – the suitability of the members, of the governance structure, the feasibility and solvency margins of the business plan.
“We have worked closely with them for many months to satisfy the stringent requirements appropriate to the project. They have been a fantastic partner and we are delighted to have obtained the license.”
MIRIS is domiciled in Belgium and will provide direct insurance. It can only accept members from the European Union and European Economic Area (EEA) with €25 million of capacity being allocated for each member in its first two years of operation.
The chief information security officers (CISOs) of its members, alongside their insurance manager colleagues, have played a significant part in the project and will contribute to a risk control function that screens new members and shares risk management best practices.
“Cyber risk is probably the fastest evolving risk the insurance market has ever needed to consider,” said Mark Pollard, chief operating officer.
“In an industry where data and past experience shape the market response, this rapid evolution creates uncertainty, and consequently market volatility which challenges the risk transfer objectives of the policyholders.
“MIRIS aims to provide additional capacity, and in the longer term to help to stabilise the market for its members. That depends on the members being exceptionally well protected against the risks.
“MIRIS will have a role in promoting and validating excellence in cyber risk protection, as well as providing risk transfer capacity.”
Another big year ahead for captives
As organisations of all kinds face a continued hard insurance market, with significantly higher premiums and deductibles coupled with new coverage limits, establishing a captive insurance company becomes an increasingly attractive option.
The past year recorded increased levels of captive activity, and the trends suggest 2023 will be another banner year for this versatile, effective risk management strategy.
Given the uncertainty of the global economy and fears of a recession within the U.S., we may see a slowdown in captive formation during the early part of the year. But given the many advantages of a captive strategy and no signs of softening in the insurance market, we’re confident the growth rate will resume quickly.
In addition to new captive formations, we expect to see additional attention paid to the structure and scope of existing captives.
As organisation leaders become more familiar with the performance of their captives and increasingly comfortable retaining risk, they’ll examine opportunities for covering additional areas of risk and analyse whether increasing retentions would be prudent.
Companies that were once content to defer most risk-related activities to their insurance brokers or consultants are playing an active role in identifying and analyzing risk. Beyond addressing traditional property and casualty risks, they are turning to captives for non-traditional coverages such as business interruption, difference in conditions, supply chain, medical benefits, life and voluntary benefits.
This reflects increased sophistication with in-house risk management, a clearer understanding of risk exposures, and growing familiarity with non-traditional risk management opportunities.
Strategies that may have been considered exotic are becoming commonplace, and the increased availability of cell captives creates opportunities for more organisations to explore a captive.
Additional evidence of the increased sophistication is the recognition of the importance of data in risk management. Most organisations have long accumulated relevant data, but until recently, most spent little time analysing it to obtain tangible and meaningful insight into risk exposures.
The right data analysis tools can enhance an organization’s ability to determine how much and which types of risk they can comfortably retain and how best to address them. That provides greater confidence for decision-making and improves forecasting.
Cyber and climate drivers
As we get deeper into 2023, we expect to see increased captive activity around two categories of risk.
The first is the continued use of captives to address cybersecurity. Carriers bruised by large claims related to breaches and ransomware have tightened their underwriting and added exclusions and other limits, pushing many risk exposures back onto the policyholders.
Faced with significant premium increases for less coverage, organisations are seeking alternative ways to create safety nets for uncovered exposures, and captives have been the logical answer for many.
The second category is related to the climate effects on organisations. As regions worldwide experience extreme weather generally attributed to global warming, claims have skyrocketed.
Whether it’s the devastation wrought by Hurricane Ian in the southeast United States, record high summer temperatures across Europe, or droughts and resulting wildfires on multiple continents, weather-related events are threatening property, disrupting operations such as supply chain activity, and creating previously unforeseen liabilities.
As underwriters adjust coverages and premiums in the wake of large claims, organisations increasingly look to captives for creating customized solutions.
Additional risk categories are emerging and are likely to play more prominent roles in future planning and the use of captives.
As mentioned, supply chains have been affected by weather, but that’s just the beginning.
Geopolitical issues such as Brexit, the Russia-Ukraine conflict, and political instability in established and emerging economies threaten dependence on supply chains globally.
The impact of the computer chip shortage on the world’s vehicle production is a familiar example, and it’s far from the only one.
The lessons of the COVID pandemic are not lost on organisation leaders who recognise that increased global travel and commerce are likely to foster future pandemics.
Our captive team has been working with reinsurance providers to develop effective solutions for managing the risks associated with future viruses or other diseases which may threaten the world’s health.
Finally, growing attention to environmental, social, and governance concerns is a promising area for captive strategies.
As consumers and governments place greater emphasis on organisations’ activities and demand accountability for ESG initiatives, those organisations are likely to encounter risks that may best be addressed through captives.
As the world and the global economy grapple with a long list of unprecedented challenges, company leaders need to step up their planning efforts, looking far beyond the next quarter to understand and assess the potential business impact of these far-reaching changes.
In such an uncertain environment, risk management will play a more significant role in determining both big-picture strategies and operational details.
Organisations wise enough to look beyond 2023’s immediate needs will be more likely to include captives in their toolbox of solutions.
OneNexus targets doubling of $1.2bn funding for decommissioning wells
OneNexus is planning to increase the $1.2bn in funding it is providing to oil and gas companies to help them decommission their liabilities, according to the company’s chief risk officer, Gerry Willinger.
“We think it’s approximately a $500bn issue onshore in North America,” he told Captive Intelligence.
“Our goal is to get through the first tranche of approximately $1.2bn of gross liability exposure in a year. And by next year, hopefully we’ll be out there with another $1.2bn or even bigger.”
The company, supported by its Oklahoma-domiciled captive, recently entered into a definitive agreement with Munich Re’s Energy Transition Finance subsidiary to provide regulatory capital for OneNexus Oklahoma Captive Corporation (OOCC).
Munich Re’s financial commitment, along with capital provided by OneNexus’ founding members, will ensure that the management company has capital to cover up to $1.2bn in liabilities, which it can use to provide energy operators with a clear path to funding their long-term decommissioning liabilities.
Willinger said one reason they had picked the Sooner State for OOCC was because of its regulation of multi-cell captives.
“As you build up the pools of assets, there’s going to be certain assets that fit better into certain cells from a risk perspective,” Willinger said.
“If one client has 25,000 wells, they’re likely to want to be in their own cell, like a separately managed account.”
He highlighted that there are around 3.5 million wells in the US. “And each of them is going to have different levels of risk and duration and you’re going to want to be able to pull those together, to manage the risk effectively.”
Willinger also said the company was attracted to Oklahoma’s history with oil and gas companies.
“We wanted an oil producing state that had a lot of production, and a lot of wells, and we wanted a regulatory body that understood, from an insurance standpoint, the risk associated with the future liability of inactive, unplugged wells,” he added.
This mirrored the thoughts of Oklahoma’s new captive director, Steve Kinion, who highlighted the state’s connection to the oil and gas industry in a recent interview with Captive Intelligence.
“They’re welcome in Oklahoma because Oklahoma has a long history with that industry,” Kinion said.
Willinger said OneNexus had considered the possibility of providing the funds through a trust, before finally settling on the captive model.
“You have the obligation, the moment you drill the well to decommission it, and it’s a growing liability,” he explained.
“So, when we thought about those concepts of liability and risk management, we went down two paths.
“One was to form a trust to help do it, or the other one was captive insurance,” he said.
“And the reason why we went the captive insurance route is because we think having the long-standing insurance regulations provides and an additional level trust that the money will be there, when claimed, is important.”
He said the company needed a regulated insurance concept that provided a framework where it could be rated from an insurance standpoint and be “regulated by the insurance representatives to verify that the funds will be there”.
GCP #78: Ellen Charnley, Steve Kinion and Cayman Captive Forum report
In episode 78 of the Global Captive Podcast, supported by legacy specialists R&Q, Richard is joined by Ellen Charnley, President of Marsh Captive Solutions, for our annual interview new formation trends, uses of captives by MGAs, third party growth and ESG.
Luke interviews a familiar face as Oklahoma’s new captive regulator, Steve Kinion, and also has a report from the Cayman Captive Forum, which features, in order, Erin Brosnihan, at Kensington Management Group, Adrian Lynch, of Artex, Robert Leadbetter, of USA Risk, and Colin Robinson, at SRS.
You can listen to the Global Captive Podcast on all podcast apps and the Captive Intelligence website.
Marsh reshuffles leadership in UK, Ireland and Asia Pacific
Marsh Captive Solutions has announced a reshuffle of its leadership in Dublin, Asia Pacific and London as Stephen Hawkes and Brian McDonagh retire.
From 1 February, 2023 Lorraine Stack, international consulting and sales leader at Marsh Captive Solutions, will add leadership of Marsh’s Dublin operations to her current role.
She succeeds McDonagh, who is retiring after 27 years with Marsh, and be responsible for a team managing single parent captives and special purpose vehicles domiciled in Ireland.
Stack will continue to report into Ellen Charnley, president of Marsh Captive Solutions.
Stuart Herbert has led a fast growing captive operation in Singapore since 2011 but will now be relocating to the UK to take on the position of international captive consulting practice leader. He featured in GCP #47 discussing growth in the Asia Pacific captive market.
He succeeds Stephen Hawkes, who is retiring after 29 years with Marsh, and will lead a team responsible for captive feasibility studies and strategic reviews for prospective and current captive owners.
Herbert’s successor for Asia Pacific will be Nisala Weerasooriya, overseeing offices in Singapore, Labuan and Australia.
Weerasooriya is currently head of Marsh Captive Solutions’ New York office and has held various client services roles over the past 30 years.
“Throughout their careers, Lorraine, Stuart, and Nisala have demonstrated exemplary leadership and unwavering dedication in supporting our captive insurance clients,” said Charnley.
“In this time of unprecedented captive growth, their considerable experience will be invaluable as we seek to provide enhanced services and resources to our clients.”
Herbert will report into Lorraine Stack, while Weerasooriya will report to William Thomas-Ferrand, leader of Marsh Captive Solutions, International.
Ellen Charnley, Lorraine Stack and Stuart Herbert have all featured in numerous episodes of the Global Captive Podcast, alongside colleagues and clients. Listen to all episodes featuring Marsh on their Friend of the Podcast page.
New French regime “could triple” captive number in France
Captive professionals in France have welcomed the all but passing of the 2023 Budget (PLF), which includes provisions for introducing a new captive regime in the country.
French risk management association Amrae has been lobbying hard for more than two years for legislation that would make it easier for captives to be established in France.
Prime Minister Elisabeth Borne announced on Thursday she would push the finance bill through without a vote, clearing the path for progress.
The existing French regulatory regime is not hostile to captives and since 2020 five new reinsurance captives have been formed in the domicile by French corporates.
Multinational payment and transactional services company Worldline established a captive in 2020, while food processing business Bonduelle and consortium Groupe SEB set up captives last year.
In October 2022 multinational advertising and public relations company Publicis Groupe got its captive licence, and Captive Intelligence understands another captive was licensed on Wednesday evening.
One of the key negotiating points to get a specific captive regime introduced in France was keeping hold of the equalisation provision already available to reinsurers in the country.
“France is a very interesting domicile for captives,” Laurent Bonnet, head of captive and alternative risk transfer solutions at Marsh France, told Captive Intelligence.
“The regulator is very approachable and supportive to develop captives in France. However, in an international competition, Luxembourg is far beyond France in that respect.
“The equalization reserve is definitely a key differentiator and there will be new captives for sure, but less than we could expect.”
Bonnet added that the success of the legislation would depend on an application decree which will establish the rules under which captives are formed and governed.
“We know the framework now, but we don’t know yet all the details. The devil is in the details.
“But if we benefit from a coherent legislation compared to the one in place in Luxembourg, then we should triple the number of captives in France in the coming years. And some captives based outside could be repatriated.”
French-owned captives have typically gravitated towards Luxembourg and Ireland, while there are also French captives in Malta, Switzerland and Guernsey.
It remains to be seen whether captives that are established in a domicile with a strong track record on captives will be tempted to re-domesticate now that the option in available.
TMF Group works with large European insurers, including several direct writing captives, on their insurance premium tax administration and compliance.
France-based Christophe Bourdaire, IPT quote content director at TMF, said they had been following the developments closely.
“With a focus on reinsurance captives, and a primary interest in domestic companies, it will be intriguing to see what interest is generated from local companies with many CAC 40 companies already having captives established in other European domiciles, such as Luxembourg,” Bourdaire said.
“We will wait to see if in the future provisions extend to the set up of direct write captives.”
“International discussion” requested for captive board criteria
The requirements of captive boards and independent directors varies from domicile to domicile but a global standard may be useful to enhance governance of captive insurance.
Speaking on a recent GCP Short, Paul Wöhrmann, head of captives services at Zurich, was joined by Andrew Bradley, Malcolm Cutts-Watson and Francoise Carli, who have all had careers packed full with captive experience, and sit on captive boards today.
Xavier Groffils, manager of the Luxembourg captive owned by Belgian chemicals company Solvay, and Hans-Peter Wagenhöfer, director of insurance and reinsurance at German multinational BASF, also shared their views.
The speakers, who addressed the topic at the European Captive Forum, in Luxembourg, in November, recognised the varied approach to outside directors across captive domiciles, referencing Airmic’s Captive Governance Guide published in May 2019.
“Since the complexity of the captive business has increased significantly, I’m of the opinion that an international discussion of the risk management community regarding the definition of unified qualification criteria for captive board members could prove to be worthwhile for Europe,” Wöhrmann said.
In Switzerland, the regulations state that one third of an insurance company board members must be independent, but the regulator is able to grant exceptions for captives.
There is also a minimum requirement of three board members for a captive in Luxembourg, but no obligation to have outside or independent directors.
Of the major captive domiciles in Europe, only Guernsey, the Isle of Man and Malta require an independent non-executive director, while Bermuda, Cayman and Vermont, the three largest captive domiciles in the world, do not require them.
Whether directors need to be resident in the relevant domicile also varies by jurisdiction.
Cutts-Watson, previously chairman of the Willis global captive practice and now an independent consultant, suggested that by going through and translating the various domiciles’ regulations, guidance notes and codes of conduct concerning captive boards into the Institute of Directors’ definition of a board, a comprehensive list of requirements emerge.
“You’ve got technical requirements such as risk management, insurance, accounting, legal, you’ve got the need for strategic thinking,” he said.
“You’ve got the need to demonstrate corporate governance and compliance, and you’ve got the need to show judgment, an ability to build trust and to understand the parent company business.”
He believes outside or independent directors are well suited, or even required, to deliver those range of perspectives and judgement.
“You’re effectively looking for someone or something to provide independent oversight and constructive challenge to the executive directors,” he added.
“And by implication, I think that that’s saying you do need an outside director on the captive board.”
When asked what makes a good outside board member of a captive, Francoise Carli, formerly vice president of insurance at Sanofi, said it is critical that they behave as a non-executive.
“You are not there to give orders, to do things, to realise different parts of the activity,” she said.
“You are there as a non-executive, which means you do not execute. And this is very important because if you don’t have that kind of position, you’re going to make more tension in the board than anything else.”
Carli added that it is a “plus, not a must” that an outside board member has a specialist background in risk, insurance, actuarial or even in the industry sector of the captive parent.
“Because if you have the right position in the board, you’re going to bring what is important, which is a contribution to the discussion and of course a good assessment of the situation,” she explained.
Andrew Bradley, formerly head of group risk services at Nestle and now an outside board member of a captive, said he does not believe the true value of outside board members is currently being realised.
“Outside captive board members aren’t necessarily taken up and included in a board unless it’s required by the local captive domicile,” he said.
“I found a few cases where forward thinking companies have expressly gone out to have not only one, but sometimes two outside board members to challenge what they do and have that extra experience in managing the company.
“So I think this is still very much work in progress and an important part of captive governance, but I think people somehow need to see the value of outside board members because I’m not sure whether that’s coming through just at the moment.”
The panel also debated the need for greater diversity on captive boards, not just with regard to gender, age and ethnicity, but also from different industries and backgrounds.
“This is exactly what is happening in the largest companies around the world,” Carli added.
“Why shouldn’t we have that in the captive business? It is critical that people understand that these broad sets of experiences is giving another way to assess what’s happening in the board and to support and help the executives that are part of the board team.”
Finally, in terms of board member recruitment, Cutts-Watson recognised there is starting to be a move away from the “old boys network” perception, with regards captive board appointments, that is based on a historical reality.
“It’s hard to avoid the accusations of male, pale and stale,” he said.
“What I’m seeing now is a move to a more professional way of recruiting outside directors and I would say it’s a transparent and objective process that is defensible so that if you are challenged you can demonstrate why you have appointed a particular candidate.”
Captives to play key role in energy transition
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Captive Intelligence provides high-value information, industry analysis, exclusive interviews and business intelligence tools to professionals in the captive insurance market.