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QBE launches Vermont PCC for MSL business

Richard Cutcher
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QBE launches Vermont PCC for MSL business

QBE North America has established a sponsored protected cell company (PCC) in Vermont with the initial purpose to support medical stop loss programmes.

Champlain Insurance PCC was licensed by the Vermont Department of Financial Regulation on 15 June and is managed by Advantage Insurance Management.

QBE has a long history in America’s medical stop loss market, today supporting 27 captive programmes, including single parent and group captives.

Dale Sagen joined QBE as vice president in accident & health as business development leader, cell captive, in May 2023 and speaking on the Global Captive Podcast at the VCIA conference in August, said adding the option of utilising Champlain was an “opportunity to drive greater results for our clients”.

“It’s very difficult to set up a captive programme,” Sagen said. “So we set this up to essentially make it easier and more efficient for our customers to utilise captives.

“Not necessarily just the rank and file captive programme you see here at VCIA, where sometimes it’s just one large employer, but making it easier for those smaller employers, those smaller advisors that technically don’t have a lot of options out there in the marketplace.

“We see the Champlain Insurance PCC programme as an opportunity for us to provide a better service for our clients and really utilising it from a variety of ways is what we’re most excited about.”

Sagen said that the PCC would make QBE’s service model more efficient and support clients wanting to utilise their own captive or build a group captive within a cell.

“It’s a very effective model for employers and advisors that essentially want somebody to be their risk management partner,” he added.

“As you advance down the supply curve of captive solutions supported by QBE, you’re going to find an area in which you can create your own agency branded programme, a white labelled approach to a group captive.

“You can move to a model where it’s a single parent captive programme using our vehicle. It’s a cell facility, which means that it’s pretty open to just about any risk that our clients are interested in.”

While the focus now is on using Champlain for medical stop loss, Sagen believes it will become useful for property & casualty captives programmes in the future.

“From our perspective, we’re starting with medical stop-loss, but we are a global insurance company,” he said.

“So it’s an area where we will look towards more property and casualty opportunities as they materialise. But our facility now is really focused solely on medical stop-loss.”

The full interview with Dale Sagen will be included in episode 91 of the Global Captive Podcast.

AM Best affirms Saipem captive rating

Luke Harrison
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AM Best has affirmed the Financial Strength Rating of B++ (Good) and the long-term issuer credit rating (long-term ICR) of bbb+ (Good) of Sigurd Rück AG, the Switzerland domiciled captive owned by Italian multinational Saipem. The outlook for the ratings is stable.

Sigurd has a material exposure to credit risk driven by a cash-pooling agreement with the Saipem group, which acts as a partially offsetting factor in the assessment.

As of 31 December 2022, the funds Sigurd allocated to the cash-pooling with Saipem represented 47.7% and 70.3% of the company’s total assets and capital and surplus, respectively, down from 59.8% and 78.6% in 2021.

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

The ratings agency said Sigurd has a strong operating performance record, evidenced by a five-year (2018-2022) weighted average return-on-equity and combined ratio of 10.4% and 67.8%, respectively, calculated by AM Best.

“Profitability has been supported by a low and stable expense ratio and a good, albeit volatile, loss ratio,” the ratings agency said.

“While operating profitability declined in 2022 as a result of a large claim incurred during the year, with the company’s combined ratio increasing to 97.7%, profitability is expected to remain strong prospectively.”

Sigurd’s very strong balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).

AM Best expects Sigurd’s risk-adjusted capitalisation to remain at the strongest level, supported by the captive’s conservative reserving policies, its moderate exposure to catastrophe losses and its comprehensive retrocession programme with well-rated retrocessionaires.

Sigurd’s business profile benefits from geographic and product diversification derived from Saipem’s wide-ranging commercial activities.

LCSWMA captive elevates risk management, adds credibility

Richard Cutcher
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LCSWMA captive elevates risk management, adds credibility

Owning a captive insurance company has put more emphasis on developing and improving risk management initiatives at Lancaster County Solid Waste Management Authority (LCSWMA), according to CFO Dan Youngs.

LCSWMA established its Vermont captive, Sustainable Assurance Company in January 2021, in response to the hard market and speaking on the Global Captive Podcast at the VCIA conference last week, Youngs said now in its third year of operation, the captive has been a success.

“We formed the captive somewhat out of a desperate situation,” he said.

“We have power generation facilities and those facilities are not too appealing to underwriters, so we had a collapse in the capacity to underwrite us.

“The captive proved to be a very viable solution for us and having a strong liquidity position, financial strength of the parent company, it really made sense to go this route.”

The captive is now underwriting $850m of LCSWMA’s property and it is considering adding medical stop loss and an excess layer for cyber in the future.

One the big impacts made by the captive, however, has been the focus it has put on risk management within the organisation.

Youngs said risk management is now one of LCSWMA’s six key pillars for success, but previously “it was two words we never really talked about”.

“We’ve hired in staff around risk management,” he added. “Obviously we have skin in the game now, but it’s at the forefront of our thought and I think, at the end of the day, that that makes us a more resilient business.

“And not just the human element, safety side of our business, but reputation risk, brand risk, all those things that play a part into our success as a company.”

Youngs said having the captive has also given the organisation more “credibility and leverage” in the insurance market.

“It forced us to hone in on a lot of procedures and processes that we can now speak to those commercial markets, the reinsurance markets, at their same level, in the same language perhaps,” he said.

“It shows the investment of our management team to those underwriters and it has brought markets to the table that maybe previously had no interest in us.”

Listen to the full interview with Dan Youngs, CFO of LCSWMA, in GCP #90 on the Captive Intelligence website here, or on any podcast app. Just search for ‘Global Captive Podcast’ and hit subscribe on your podcast app of choice.

GCP #90: Regulator Jim DeVoe-Talluto, LCSWMA CFO Dan Youngs and Vermont’s Jenni Gagnon, Danielle Brown

Richard Cutcher
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Jim DeVoe-Talluto, State of Vermont
Dan Youngs, LCSWMA
Jenni Gagnon, Primmer Piper Eggleston & Cramer PC
Danielle Brown, Hylant

In episode 90 of the Global Captive Podcast, supported by the EY Global Captive Network, we bring you the first set of interviews recorded at the Vermont Captive Insurance Association (VCIA) annual conference.

Richard is joined by Jim DeVoe-Talluto, Assistant Director of Captive Insurance at the Department of Financial Regulation.

We also catch up with Dan Youngs, CFO of Lancaster County Solid Waste Management Authority (LCSWMA), which formed a Vermont captive in 2021. Dan updates us on the organisation’s captive journey and how having a captive has re-focused efforts around risk management.

Finally, Richard speaks to Jennifer Gagnon and Danielle Brown, two captive professionals heading up the new Vermont Captive Insurance Emerging Leaders initiative.

For more information on the State of Vermont, visit its Friend of the Podcast page on Captive Intelligence.

For the latest news, analysis and though leadership from the global captive market, sign up to the twice-weekly Captive Intelligence newsletter.

Avalara exits insurance tax compliance, software services

Richard Cutcher
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Avalara has contacted clients to inform them it will be “retiring” its insurance tax compliance services and software solutions to “focus on its core tax and compliance products and services”.

The firm, which also provides tax and software services to the retail, manufacturing and energy sectors, among others, has been working with direct writing captives and commercial insurers.

In a letter sent to clients on 24 July, and shared with Captive Intelligence, Avalara said it was retiring the following products: AvaTax for Insurance, Managed Returns for Insurance, Fiscal Rep for Insurance, and Avalara Tax Research for Insurance.

“Avalara is no longer renewing contracts for the products listed above. Existing contracts will be terminated by 31 January 2024,” the firm said in its letter co clients.

“We encourage you to explore and adopt new insurance tax compliance services.”

There are several players that offer tax compliance and software solutions to captives, particularly direct writing captives, including TMF Group and the big four firms.

Consistent, well staffed regulators helps Vermont to top spot

Richard Cutcher
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Consistent, well staffed regulators helps Vermont to top spot

The State of Vermont has cited its consistent high level of regulatory staffing, pro-active approach to captive regulation and expert local infrastructure as key reasons for becoming the number one domicile by number of captives.

According to Captive Intelligence’s data for number of captives in each major domicile, at the end of 2022 Vermont had reached number one with 639 active captives at year-end.

Bermuda had previously long been the largest domicile by this measure, but is now second with 625 active captives. Cayman Islands has 559 active captives.

“Our status as the leading captive insurance domicile is a direct result of the expertise within our robust regulatory framework and the intentional culture within our department to continuously evolve, consider ways we could be better, and work with the industry along the way,” said Commissioner Kevin Gaffney, Vermont Department of Financial Regulation.

The hard insurance market has prompted a dramatic increase in captive formations around the world, but Vermont has been well placed to capitalise on this growth.

Forty-one new captives were established in the State during 2022 and the last three years have been amongst Vermont’s top 10 years of growth in its 41-year history in the industry.

The first half of 2023 has seen 22 new captives licensed, taking its current total to 654. Traditionally, the last quarter of the year is when most captive formations take place in the US domiciles.

Assets under management in Vermont captives stands at $212bn and they write $42bn in gross premium.

“We’re excited to now be considered the top captive insurance domicile in the world,” said Vermont Governor Phil Scott.

“This status is testament to the work of Vermont’s expert regulators and strong network of highly skilled service providers, who have been committed to supporting captive insurance companies for over 40 years.”

Kevin Mead, president of the Vermont Captive Insurance Association (VCIA), said:  “It’s no surprise that Vermont has taken the lead in the industry. The ‘Gold Standard’ infrastructure here of regulators and service providers have provided stable, quality wrap around support for captive insurance companies for decades and will continue to do so for decades to come.”

Rated captives increase premium, outperform commercial market – AM Best

Luke Harrison
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Rated captives increase premium, outperform commercial market – AM Best

Rated captives continue to outperform commercial insurers in both underwriting and operating profitability, according to AM Best’s latest Market Segment Report.

The ratings agency data highlighted that the five year-average combined and operating ratios of captive insurance companies (CIC) outperformed those of the commercial casualty composite (CCC) by substantial margins.

CIC’s recorded five year combined ratios before dividends of 83.9%, compared with the CCC’s combined ratio of 98%.

Premium

Prior to 2022, premiums had been relatively flat, with a compound annual growth rate of just under 2%

“Lower premium growth has long been a feature of captives, as these companies have more control managing and monitoring their risks and setting actuarial pricing,” the ratings agency said.

In 2022, however, the segment saw the largest increase in direct premiums written (DPW) in ten years at approximately 21%.

AM Best said the rise in premiums was due to rate increases stemming from inflationary pressures and the continued hardening of the reinsurance market, which forced many captives to take on higher retentions than the year before.

This was particularly true for single parent captives (SPCs), which saw a 59% jump in net premium in 2022.

“Unlike some of their peers in the commercial market, captives have not been materially impacted by the higher frequency or severity of weather and natural catastrophes in the past five-year period,” the report said.

One of the fastest growing insurance products considered by captive is group medical stop loss coverage.

AM Best said this is primarily due to rising health insurance costs in the US and organisations wanting to take control in-house via the captive.

The report also highlighted that cell facilities continue to grow as a result of being “faster and more cost-efficient” to establish.

“Interest in cell facilities continues to grow due to the flexibility the structure provides,” the report said.

“In most of these structures, captive sponsors provide platforms accessible to cell owners that seek a variety of coverages while carrying no obligation to absorb losses arising from the cells, as the operating agent of the cell platforms.”

Spring Consulting appoints T.J. Scherer

Richard Cutcher
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Spring Consulting appoints T.J. Scherer

T.J. Scherer has joined Spring Consulting Group as vice president, having previously been with NFP.

Scherer’s focus will be on property & casualty and captive business, working closely with Spring’s captive consulting and actuarial teams.

He has more than 10 years of experience in captive and risk management services, including roles at Artex and NFP.

Scherer is a Certified Public Accountant (CPA) in California, holds an Associate in Captive Insurance (ACI), and is a RIMS-Certified Risk Management Professional.

Captive, international programmes increase control, reduce TCOR – HDI Global

Richard Cutcher
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Captive, international programmes increase control, reduce TCOR – HDI Global

Deploying an international programme, backed by a captive, should give businesses greater visibility of insured operations and reduce the total cost of risk (TCOR), according to Jason Tyng and Marco Hensel, of HDI Global in the United States.

Speaking on a GCP Short, underwriting lead Hensel outlined the definitions of difference in conditions (DIC), difference in limits (DIL), freedom of services and admitted versus non-admitted insurance and their relevance to international programmes.

HDI Global appointed Tyng its first US captive leader in January 2023 with the German industrial insurer expanding its fronting capabilities and services to State-side captive owners.

Tyng and Hensel first featured on the Global Captive Podcast in May when, in an interview recorded at RISKWORLD in Atlanta, they said the target was for its US fronting business to be writing $100m in gross premium within five to six years, expanding into auto, workers’ compensation and potentially cyber.

“When you’re talking about large multinational organisations that have high existing premiums and they want to form a captive, the captive becomes an attractive risk management tool if they’ve got a lot of high frequency, low severity claims,” Tyng said on this latest episode.

“With an international programme, when you have a footprint all over the globe, what the captive allows you to do is create the consistency across the enterprise.

“A lot of companies talk about the total cost of risk and how they manage that risk. You want to be able to have consistency and similarity from Canada to Mexico, to the US, to the UK.

“When you’re using an international programme, what you’re eliminating is all of that inconsistency in the coverage, limits, the claims handling, the policy administration, and in that simplification of the process it allows you to better understand how your business functions.

“When you add a captive, that’s you taking complete control of your risk management solution. And usually what that does is that it reduces that total cost of risk for the organisation.”

Hensel said that an international programme can be as small as including just two territories, with the size and complexity increasing as more countries and lines are added.

Property, casualty and marine lines are the most common seen on HDI’s global programmes.

“Obviously, the challenge for these programmes is having the expertise and the knowledge of each jurisdiction that the local policy is needed,” he added.

“We have a system solution that allows us to manage international programmes and that also allows the client to see the international programmes within a system, within a software with up-to-date live data about their local policies.

“Secondly, we have experts in all the countries where HDI is present or one of our group companies is present. We have the local expertise that comes together on a producing office level, producing office being the country that administers the global programme.

“And with all these expertise together, we are able to handle the challenges and provide the solutions to have a compliant, number one, programme in place and also a programme that will meet the client’s needs.”

Listen to the full GCP Short episode with Jason Tyng and Marco Hensel on the Captive Intelligene website here, or or any podcast app. Just search for ‘Global Captive Podcast’.

GCP Short: An introduction to international programmes

Richard Cutcher
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Jason Tyng, HDI Global
Marco Hensel, HDI Global

In this GCP Short, produced in partnership with HDI Global, Richard is joined by Marco Hensel, Senior Vice President and Underwriting Lead for HDI Global in the US, and Jason Tyng, ARM Vice President and Captive Lead.

Marco and Jason, who first appeared on the pod earlier this year when interviewed at RISKWORLD, give listeners a breakdown on how international programmes work, the respective roles for a captive and fronting partner, and the key elements to get right.

For more information on HDI Global, visit their Friend of the Podcast page on Captive Intelligence.

For the latest news, analysis and though leadership from the global captive market, sign up to the twice-weekly Captive Intelligence newsletter.

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