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Cells still not wholly embraced by Europe, US domiciles increasingly attractive – Jelto Borgmann

Luke Harrison
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Cells still not wholly embraced by Europe, US domiciles increasingly attractive – Jelto Borgmann

Companies in certain European countries are less likely to utilise cells than others, according to Jelto Borgmann, captive portfolio manager at HDI Global.

The use of cells in Europe has become more popular, but there is a lack of choice when it comes to domiciles within the European Union, as Malta is the only EU captive domicile that has PCC legislation in place.

More broadly in Europe, Guernsey, Gibraltar and the Isle of Man all facilitate cell business, with Guernsey a particularly popular option.

“I have a feeling that some countries are more reluctant to go in the cell direction than others,” Borgmann told Captive Intelligence.

“With UK companies, they are very open to cells, but a lot of German companies still have the issue.

“There are some that went in this direction, but it is still something that is not so familiar to everybody and needs a little bit of explanation.”

Borgmann said that from his perspective there is some legal uncertainty when it comes to cells writing direct insurance within the EU.

“In Malta they can directly write business in Europe, so they could also issue policies for compulsory insurance,” he said.

“My question would be if there would be a case, for example, when the captive defaults and there is not enough money in the cell and core to pay a claim for compulsory coverage it issued, I’m still not 100% sure that the ring fencing would be accepted by the German legal system, which is not familiar with any kind of ring fencing from my knowledge.”

Borgmann said he is seeing an increasing number of companies exploring the option of domiciling their captive in the United States.

“More and more European companies are looking into US domiciled captives, and that is something we have already seen,” he said.

Several States within the US have active cell legislation as they continue to rise in popularity.

Borgmann noted that EU companies are attracted to by the enhanced processes and accessibility of the regulators in the US compared to certain European jurisdictions.

“To take one example, four or five years ago, we had a German client who had questions regarding Vermont, and they messaged the regulator on LinkedIn and a day later they had a response, and that is something you don’t get in Germany.”

Flagstone International enters captive market

Richard Cutcher
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Flagstone International has partnered with Strategic Risk Solutions to allow its European clients access to the cash deposit aggregator’s platform.

Flagstone’s platform allows trusts, funds, companies, and high net worth individuals to manage their cash deposits across multiple banks and jurisdictions using a single account.

The firm already makes its platform available through trust companies, private banks, wealth managers and family offices, but is now targeting captive insurance.

“Having made great strides within the trust space, we recognised similar issues were arising for managers of captive insurance structures – both standalone and cell structures – which made this a logical next step for Flagstone International,” said Damian Cocking, head of sales at Flagstone International.

“We are very excited to be launching into the captive space and we look forward to rolling out our platform to other leading firms in this area of the market in the not-too-distant future.”

Peter Child, CEO at SRS Europe, said:“SRS provides our clients with the most innovative options when it comes to using their captive to better their business.

“When Flagstone International first came to me with this idea I thought it was an interesting option to ensure our clients can continue to manage cash deposits with ease.”

Pfizer captive gets AM Best rating affirmed

Richard Cutcher
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AM Best has affirmed the financial strength rating of ‘A’ (Excellent) and the long-term issuer credit rating of ‘a+’ for Blue Whale Re Ltd, domiciled in Vermont. The outlook for the ratings is stable.

Blue Whale is owned by pharmaceutical giant Pfizer and insures the parent group’s global property exposures as well as cyber liability.

“Blue Whale provides coverages with ample limits with substantial retentions, augmenting significant reinsurance capacity supporting its obligations,” AM Best said in its rating statement.

“Nonetheless, the reinsurance program is appropriate and diverse, providing ample coverage for all its lines of business.”

The rating agency said it recognises the quality of the captive’s reinsurers and the “substantial financial resources and assistance” available from Pfizer.

“In recent years of hard market conditions, Blue Whale has opted to participate in small slices of its catastrophe tower as an economic efficiency for the Pfizer enterprise,” AM Best said.

“It also offers capacity for cyber liability coverage when required by hard market pricing.”

Cayman emerging as Bermuda alternative – Adrian Lynch

Luke Harrison
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Cayman emerging as Bermuda alternative – Adrian Lynch

The Cayman Islands is emerging as an alternative to Bermuda for reinsurers and captives, according to Adrian Lynch, CEO at Blue Ocean Reinsurance Group.

Bermuda had long been the largest captive domicile in the world but was recently overtaken by Vermont by number of captives, though it still remains the largest offshore jurisdiction.

“Cayman is emerging as an alternative to Bermuda, and a number of the conversations we’re having are with carriers who already have an operation in Bermuda who are looking to perhaps have some regulatory arbitrage or looking to mitigate some of their risks by having an office in both jurisdictions,” Lynch told Captive Intelligence.

Lynch said Cayman has a reputation jurisdictionally as being very “well served”.

“The insurance management space, the audit space, the legal space, the regulatory space, and all of those factors as a combination, make the jurisdiction quite attractive,” he said.

The number of pure captives domiciled in Cayman is reached 286 at the end of 2023, an increase of nine compared to 2022, while there was 127 group captives and 154 Segregated Portfolio Companies (SPCs).

Lynch said the growth of captives in Cayman shows that underwriting standards and cost of capital has become an important issue.

“Certain companies are looking internally in terms of how they allocate capital, and quite frankly, in terms of their own risk management and their own risk appetite,” he said.

“Alternative risk financing for an organisation internally has become something that they’ve become more skilled at and more comfortable with and, as a result, captives are seeing growth in terms of extra lines of business being added.”

It has been well documented that a number of US captive owners have looked to re-domesticate their captives onshore and there was a concern this will impact offshore domiciles.

Lynch said that most US domiciles have active captive legislation, and each will have a story to tell about a captive that has redomiciled from an offshore jurisdiction back onshore.

But he added that for every captive re-domesticating to the United States, there is likely to be some going in the other direction.

“Every state would have its own reasons and its own incentives to try and get companies back onshore, and that’s why a jurisdiction like Cayman needs to remain innovative, needs to be ahead of the curve, and needs to be pre-empting.”

Lynch told Captive Intelligence last week that there was a gap in the Cayman for Blue Ocean Re after he recently launched the company.

Dubai registered (re)insurers jumps 20%, including Guernsey captive re-domestication

Luke Harrison
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Dubai registered (re)insurers jumps 20%, including Guernsey captive re-domestication

The Dubai International Financial Centre (DIFC) has increased the registration of insurance and reinsurance firms by 20%, including the first re-domestication of a Guernsey-based captive.

The DIFC has increased his gross written premium (GWP) by 23% to $2.6bn, up from $2.1bn in 2022.

“DIFC is now home to more than 120 registered insurers, reinsurers, captives, MGAs, and insurance-related entities, reaffirming our position as a global hub for the industry,” said Arif Amiri, CEO at DIFC Authority.

“Our ongoing partnership with Global Reinsurance for the Dubai World Insurance Congress, reflects DIFC’s commitment to driving economic growth and the future of finance.”

The DIFC’s said the (re)insurance industry in Dubai has been bolstered through its cultural innovation, which includes the integration of new technologies such as AI and new distribution techniques.

Captive Intelligence reported in March that Dubai had licensed one new captive in 2023, taking the total number of captives domiciled in the jurisdiction to five, compared to four in 2022.

Assets under management (AuM) in the jurisdiction almost doubled in 2023 to $550m, compared to $280m in 2022.

Gap in Cayman market for Blue Ocean Re – Adrian Lynch

Luke Harrison
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Gap in Cayman market for Blue Ocean Re – Adrian Lynch

There was a gap in the Cayman Islands insurance market for Blue Ocean Reinsurance Group, the company’s CEO, Adrian Lynch, has told Captive Intelligence.

Blue Ocean Re was formed earlier this year and provides reinsurers and larger complex captives in Cayman with tailored solutions, guidance, and strategies to help optimise their risk management.

Lynch said his thinking evolved over the past 12 to 18 months during conversations with Graham Mackay, a former CEO of a reinsurance company and a 40-year industry veteran, and Ruwan Jayasekera, former insurance regulator in the jurisdiction.

“The three of us came to the conclusion that there was a gap in the market in terms of what we were looking to do,” Lynch added.

Mackay is president and chief financial officer of Blue Ocean Re, while Jayasekera is chief operating officer.

Lynch said that having run start-up reinsurers previously, he knew it is a very different value proposition compared to running a captive.

“The error that the insurance managers are making is presuming upon the fact that they have the skill sets, technology, and the knowledge to run these reinsurers the same way that they’re trying to run what is essentially a commoditised product in captive management.”

Lynch said the company’s business plan is quite “comprehensive”.

“It revolves around obtaining an insurance management license, which enables us to manage various B3 reinsurers,” he explained.

“Even some Class D entities that have their own teams or are in the process of building them can also rely on us for specific aspects of their service needs.”

Lynch said the company is less focused on B1 captives, which are single parents.

“They are probably more suited to the larger insurance managers,” he said.

“That’s not really a market we’re targeting, it’s the third-party insurers, third-party reinsurers, the B3’s and the Class D’s, as well as the larger complex captives.”

He told Captive Intelligence that the company is in the process of acquiring a company management licence and a trust licence.

“Additionally, we’re obtaining a securities investment licence, as we find ourselves at the intersection of capital, insurance, and reinsurance, which has led us into capital raising opportunities,” he added.

“We’re securing all the necessary licences to support this expansion across our platform, and with these developments we anticipate being on a growth trajectory for the next few years.”

Lynch said he’s received “palpable validation” of the business model from the individuals and organisations he has engaged with.

“Additionally, there are asset managers looking to enter the reinsurance sector, but lacking expertise in insurance,” he said.

“We offer to manage all aspects of insurance for them, allowing them to focus on their core competency, asset management.”

Captives part of new Marsh Global Alternative Risk Solutions practice

Luke Harrison
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Captives part of new Marsh Global Alternative Risk Solutions practice

Marsh has launched Global Alternative Risk Solutions, a new practice which will encompass its expertise in parametric solutions, alternative risk transfer, captives and complex risk.

Global Alternative Risk Solutions will align existing capabilities from Marsh Specialty, Global Placement, Captive Solutions, and Advisory.

The new practice will be led by Christophe Letondot, a professional with 30 years of experience in financial services, including nearly a decade with Marsh working on alternative risk transfer, structured credit and parametric solutions.

“Leading Global Alternative Risk Solutions is an incredible opportunity to drive innovation and shape the future of risk management,” Letondot said.

“Together, we will embrace data-driven insights and cutting-edge technologies to unlock new opportunities and empower our clients to thrive in an increasingly complex risk landscape.”

The new practice will also work with Guy Carpenter to access capital pools, including insurance linked securities markets for corporate clients.

Letondot will report to Pat Donnelly, president of Marsh Specialty and Global Placement, and work closely with John Donnelly, global head of placement, as well as other Marsh leaders.

“Global Alternative Risk Solutions represents our commitment to being the risk advisor of the future and providing clients with easily accessible, cutting-edge risk management solutions,” Donnelly said.

“This practice will empower our clients to navigate the ever-changing risk landscape with confidence and resilience.”

Iowa passes bill to lower taxes on captive premiums

Luke Harrison
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The latest captive domicile in the United States, Iowa, has passed Bill 2636, which reduces the tax burden for captives writing premiums above $40m and $60m.

Iowa’s tax on captive premiums written above $60m has been reduced to 0.02%, down from the original 5%.

Captive premiums written above $40m will be now taxed at 0.045% by the State rather than 5%.

The Bill maintains the tax rate of 0.02% on the first $20m of premium and 0.125% on the following $20m.

Iowa has dedicated captive insurance regulators, and the Insurance Division has a captive insurance bureau to carry out its obligations.

Current Iowa legislation allows companies to form pure, association, protected cell, special purpose and industrial insured captives in the jurisdiction.

Captive Intelligence published an article in June highlighting that Iowa is likely to become the next US state to embrace captives, which would make it the thirty-sixth US jurisdiction to adopt captive insurance legislation, including the District of Columbia.

Workers’ comp captive suitability continues, gateway for further lines

Luke Harrison
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Workers’ comp captive suitability continues, gateway for further lines
  • Programme structures have evolved, but remains common captive line
  • Helps captives to build reseves and investment income
  • Group captives common structure due to predictability of losses

Workers’ compensation is one of the most popular lines for captives to insure in the United States, with its predictability and stability allowing captives to build surplus and write more volatile risks.

As a result of its predictability, group captives are a popular structure to write workers’ compensation as members of the group generally feel secure in risk sharing.

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DARAG Insurance Guernsey completes acquisition of large Cayman captive

Luke Harrison
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DARAG Insurance Guernsey has completed the signing of a sale and purchase agreement (SPA) to acquire a Cayman domiciled (re)insurance captive.

The SPA is subject to regulatory approval from the Cayman Islands Monetary Authority.

DARAG intends to merge its Guernsey vehicle with the acquired captive in due course and reinsure the longer tail portion of the portfolio to its core risk carrier in Germany, DARAG Deutschland AG.

The captive was acquired from a large multinational corporate, has long tail UK employers’ liability exposure and DARAG said it is one of the larger transactions completed by the company in the captive market.

 “This transaction is further evidence of DARAG’s dominance in the captive legacy space as well as its continued interest in acquiring and managing UK EL exposure,” said Tom Booth, CEO of DARAG.

“The Group is confident, given the advanced nature of a number of other attractive opportunities in its core European market, that 2024 will deliver excellent growth.

“We look to the future with increasing confidence as demand for our legacy solutions is plentiful, investment yields and capital efficiency continue at attractive levels and competition at the small to mid-sized end of the legacy market reduces.”

In February, DARAG Group completed two undisclosed captive legacy transactions in Bermuda and the Cayman Islands, as well as one in Hawaii.

In October, DARAG concluded a novation agreement between an undisclosed Benelux based captive, the captive’s policyholder and DARAG’s German insurance carrier, DARAG Deutschland AG.

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