AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Utah-domiciled NiSource Insurance Corporation (NICI).
NICI is a single-parent captive wholly owned by utilities company NiSource Inc and the outlook for the ratings is stable
The company serves approximately 3.5m natural gas customers and 500,000 electric customers across six US states.
The captive provides all-risk property, workers’ compensation, excess general and automobile liability, medical stop-loss, long-term disability and group life insurance for the parent and its affiliates.
The ratings reflect NICI’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 combined and operating ratios have outperformed the industry averages, due to a low underwriting expense structure and loss ratios trending favourably.
Since inception, NICI has generated profitability at levels generally equal to or better than its industry peers.
Over the years, retained earnings have boosted NICI’s balance sheet strength with future earnings expected to produce more of the same.
The captive’s balance sheet strength assessment of very strong reflects the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the company’s strong liquidity measures, conservative investment philosophy and history of favourable reserve development.
AM Best said it has “taken a balanced view of NICI’s overall business profile, which albeit limited in scope, maintains inherent advantages as a single-parent captive with immediate access to business and resources along with the broader financial wherewithal of its ultimate parent”.
The ratings agency also noted that downward rating pressure could result from a decline in the company’s operating performance, an increase in underwriting leverage, or an outsized loss event that triggers a sudden decline in risk-adjusted capitalisation.
In addition, rating pressure could occur if there are any sudden and material changes in the financial and credit profile of the parent.
Professional services firm CBIZ has established a single parent captive in Vermont in response to seeing rates and deductibles increase and wanting to put in a long-term risk financing strategy.
Rockside Insurance Company was licensed on 15 March and will be managed by Strategic Risk Solutions.
Kristen Peed, director of corporate risk management at Cleveland, Ohio headquartered CBIZ, joined Vermont’s deputy commissioner for captive insurance Sandy Bigglestone to discuss the company’s rationale and journing in establishing the captive for a GCP Short recording at the CICA International Conference in March.
“We really started looking at a captive during the hard market because rates were going up, our deductibles were going up,” Peed said.
“But my proposition to our senior leadership was really looking at it from a long-term strategy. How could we utilise it five years from now, 10 years from now?
“CBIZ is a growing company, we’ve doubled in size since I joined, and so our risk needs are going to be very different in the future than they are maybe right now.
“Starting this captive journey and getting through it, it’s been pretty exciting to see what we might be able to do with it in the future as well.”
Bigglestone explained that Vermont’s mantra that “when you’ve seen one captive, you’ve seen one captive”, originally coined by Ed Meehan in the 1980s means that while some business cases for formations may look familiar, it is the job of the regulator to look at each application in a unique way and review it on its merits.
“We see how they’re articulating their business plan, we see their mission as an organisation, we understand how they approach their risk management and have a robust risk management and loss prevention programme,” Bigglestone said.
“And those are sort of the things that we see that often differ from other organisations, even writing the same lines of business.
“So we appreciate each company on its own merits and I’m very excited for this application and seeing it through and seeing how it develops and evolves in the next few years.”
Peed said that although there were some frustrations along the way, she enjoyed the full formation process, from issuing requests for proposals (RFPs) and the feasibility study, to domicile selection and the application itself.
“One of the best things that I enjoyed about the process was getting to know our finance department at CBIZ,” she added.
“Several of them are going to be sitting on our board with me and so that’s been really neat.
“And then working with the different service providers and the regulators in Vermont.
“You can tell that the calibre of service providers in Vermont is really high because they know what they’re doing and I think it makes something that could be frustrating, more enjoyable.”
Listen to the full 17-minute episode with Sandy and Kristen here, or on any podcast app. Just search for the ‘Global Captive Podcast’.
In this GCP Short, produced in partnership with the State of Vermont, Richard is joined by Kristen Peed, Director of Corporate Risk Management at professional services firm CBIZ, and Sandy Bigglestone, Vermont’s Deputy Commissioner for Captive Insurance.
Kristen brings listeners up to speed on CBIZ’s recent captive formation in Vermont – Rockside Insurance Company – and shares her experiences of the full startup process.
Sandy discusses the CBIZ application and updates listeners on recent formation activity in the State.
Vittorio Zaniboni is captive and insurance excellence leader at EY Luxembourg. Before joining EY in September 2022, Vittorio was chief insurance officer at General Employee Benefits.
Managing Data Quality (DQ) has held a stable position within the top priorities of insurance companies, in particular for global employee benefit (EB) captives. Vittorio Zaniboni, EY Luxembourg Director and Captive & Insurance Excellence Leader, shares some practical advice for managers on how to implement data quality initiatives.
Not only do EU regulators consider Data Quality (DQ) a fundamental pillar of a successful Solvency II implementation, but the industry at large has developed a growing sensibility towards its importance in all the aspects of running business. When focusing on global EB, its role can become even more critical.
Still, research has shown that one third of insurance organisations either don’t have a DQ policy in force, or have it covering only regulatory purposes.While it is relatively easy to understand the importance of DQ in providing accurate underwriting and pricing decisions, it is also important to realise that it represents a continuous effort for companies to adopt best practices in data collection, management and analysis.
The fundamentals of Data Quality and its importance for the industry
DQ refers to the accuracy, completeness and consistency of the data sets collected and used by insurance companies. Accurate data is essential for effective decision-making, as incomplete or inconsistent data can lead to incorrect decisions.
Looking at the characteristics of EB related data, it tends to be more fragmented than data sets relevant to other lines of risks (in fact it spans across HR data, health data, financial data, personal data which often also involves the families of the employees, etc.).
The supply chains of EB data are also likely to be more complex and articulated, involving local HR departments, local brokers, third-party administrators, managing general agents, local insurers, fronting networks, etc.
This makes the challenges a global EB captive has to face to govern its DQ significantly more complex.
Implementing best practices to mitigate EB related risks
Considering that captives rely on data to underwrite and price risks accurately, inaccurate data can lead to mispriced policies, resulting in lost profits and even insolvency.
In addition, it is important to consider that the data received from the EB captive’s providers is not only used for underwriting and pricing, but for all regulatory needs, e.g., solvency capital requirement (SCR) calculations, cash and investment management, strategic decisions, risk appetite management, risk retention management and purchase of retro-protection, down to possible decisions on local benefits levels.
To efficiently ensure a proper DQ framework, EB captives can put several best practices in place:
1. Establish DQ Standards: Standards to assure data accuracy, completeness and consistency should be established in collaboration with all stakeholders, including data collectors, analysts and IT staff. They should be clearly defined, documented and communicated to all relevant parties, especially if the captive is using several fronting networks at the same time. Ensuring a consistent set of DQ standards across different fronting networks can prove to be particularly challenging.
2. Collect Relevant Data: The data collected should originate from reliable sources, such as plan administrators, medical providers, local insurers and other relevant parties, and be properly aggregated and organised by the various stakeholders along the value chain (fronting networks, global brokers, etc.). The data should also be collected on a regular basis to ensure that it is up to date.
3. Automate Data Collection: Manual data collection processes are prone to errors and inconsistencies. Captive insurance companies can use various solutions to automate data collection, such as electronic data interchange (EDI) or dedicated web-based portals. Very often EB captives tend to tame the complexity of the data sets they receive from their providers, by adopting an overly manual approach, and do not dedicate enough energy and resources to the digitalization of data-related internal processes. This approach, besides being inefficient, will rapidly show its limits, as soon as the volume and complexity of EB risk managed by the captive increases, making the scalability of this setup rather difficult.
4. Validate Data: Data validation involves checking data for accuracy and completeness. Validation processes can include data profiling, data cleansing and data enrichment. Captive insurance companies can use various tools and software solutions to do so, always focusing on preserving data integrity, while ensuring that the data flows they receive are consistent with the specifications negotiated with the data providers.
5. Integrate Data: Data integration involves combining data from different sources to provide a complete view of the risk being (re)insured. It can help identify correlations and patterns that would not be visible in individual data sets. A typical example of such integration is represented by the “medical claims reports” provided by several fronting networks to their captive clients, on their medical portfolios. In this case, the pure accounting data provided in the cession framework is not enough for captives to properly assess the performance of those schemes and needs to be integrated with non-accounting data sets. Some fronting networks have recently started to extend this approach to long-term disability (LTD) annuities, where the proper evaluation of mathematical reserves ceded to captives requires a wider range of information than that usually provided in the cession framework.
6. Monitor DQ: Monitoring should be performed on a regular basis to ensure that DQ standards are met, and issues should be addressed promptly. Regular complete audits can also help companies to i) ensure that standards are being met and ii) identify areas where further improvements are needed.
Implementing a holistic set of DQ initiatives clearly requires a multi-faceted approach that involves people, processes and technology. Diving further into the detail, here are some practical steps that captives can implement:
1. Appoint a DQmanager: The DQ manager should have the necessary skills, knowledge and empowerment to oversee and manage DQ processes in an effective way. Due to the limited headcount of most EB captives, this role does not necessarily need to be full time, but assigning DQ accountability in a clear way within the organization, is a fundamental step to ensuring an effective governance.
2. Establish a data governance framework: The framework should outline DQ standards and processes and be communicated to all relevant parties. Regular communication should be provided to ensure that all stakeholders are aware of their roles, responsibilities and interdependencies.
3. Use DQ tools: In order to identify and address DQ issues, captives should choose tools that align with their specific needs and requirements. The technology aspects mentioned above (alongside people and processes) are fundamental, but often neglected. Considering the volume and complexity of business data handled by captives, it is of critical importance to make use of the proper tools to support the DQ activity.
4. Implement DQ checks: Captives should establish a clear and articulated protocol of checks at key stages of the data lifecycle, including data collection, processing, and reporting, with acceptable ranges for every KPI, and a mechanism of escalation and alerts in case of deviations. Being concerned about DQ and “checking numbers” is not enough to execute an effective governance; it is important to lay down a complete set of checks and actions to be sure that the procedures do not remain an end in itself. Further, an important step is then to assign remediation measures to be implemented, in case a DQ issue is detected.
Ensuring DQ is essential for captives that (re)insure employee benefits: poor DQ can lead to inaccurate reporting, increased risk and poor decision-making, in so doing defeating the many advantages a corporate can achieve by consolidating its EB risk in its captive.
To achieve the goal of DQ, it is crucial to adopt a holistic approach, engaging all stakeholders, using the appropriate and relevant tools and including in the scope all the data along the value chain.
Ransomware accounted for 70% of total claims costs incurred by CFC Underwriting in 2022
More than 120% of growth in number of captives writing cyber in Marsh’s portfolio
Single parent, cell captives and mutuals all established to provide cyber capacity to insureds
A lack of capacity and high pricing in the cyber market is resulting in increasing captive utilisation for cyber risk.
The commercial market has seen periods of triple-digit rate increases during one of the most significant periods of hardening ever experienced in cyber, primarily driven by costly ransomware claims.
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Strategic Radiology, a nationwide network of independent, private radiology practices, launched group captive SR Health on 1 January, in order to provide coverage for the shareholders and employees of its 32 independent private practice member groups.
Nine member groups with more than 2,000 covered lives are now receiving benefits under the plan, with more of the 32 member groups expected to be onboarded throughout 2023 when existing contracts expire.
In creating a self-funded captive insurance plan, owned by members, the coalition anticipates that members will achieve up to 30% or more savings on premiums, greater control of coverage options, and visibility into plan data.
“The cost of health insurance has become a pain point not just for private practice radiology, but for all employers in the US,” said Scott Bundy, chair at Strategic Radiology.
“Our practices came together, educated themselves on the options, and built an insurance captive program that will lower costs and improve flexibility for our member groups. In exercising an ownership mentality, Strategic Radiology member groups will reap significant cost savings and plan control.”
SR member groups will share risk in the captive layer and partner with vendors with the aim of significantly reducing overall costs.
The plan has been built to maximise value and control at the local individual practice level, minimise disruption of access to existing providers, and maintain economic fairness between high-claims and low-claims groups.
SR said that by leveraging scale and sharing a reasonable portion of risk, the participating groups have effectively eliminated third-party costs on all but the catastrophic portion of risk.
Adam Fogle, CEO of Quantum Radiology, noted that joining the group was an opportunity to assume control over a costly employment benefit and gain insight into expense trends.
“For years Quantum Radiology felt powerless as premiums for health insurance, our largest single overhead expense, marched higher,” he said.
“SR Health gives us an option to provide employees the exact same health benefits while curbing the growth of this major expense item. We retained the same provider choices and will receive quarterly reports on utilization. This level of transparency and control is something we never had with commercial health insurance.”
Captive Intelligence recently published a Long Read exploring how the rising costs of medical malpractice insurance for those working in the US healthcare industry is leading to greater captive utilisation.
The North Carolina Captive Insurance Association (NCCIA) has introduced an Insurance Revisions Bill, which, if passed, will extend the premium tax holiday for re-domestications until 2025.
In 2022, North Carolina introduced legislation that waived premium taxes for the year in which a captive re-domiciles. It also waives the next year’s premium taxes.
The waiver is designed to encourage captives to re-domicile to North Carolina, but the original legislation did not run for the full two years originally intended.
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SB 319, if passed, will extend its application until 1 January, 2025.
“Even with the quirk caused by the shortened allotted time frame North Carolina received and approved seven re-domestications during the period,” said Diana Hardy, NCCIA chair.
“We are confident there will be re-domestications, assuming extension of the legislation.”
North Carolina has been reluctant to introduce and enforce self-procurement taxes on local businesses that utilise out-of-state domiciles, but hopes a premium tax incentive achieves a similar result.
SB 319 also proposes to change the retaliatory tax that is applied to risk retention groups (RRGs), reducing the maximum rate language in the statute to 1.85%.
The association had originally planned to ask for a reduction to 2%, but Senator Johnson suggested North Carolina could be more competitive at 1.85%.
The Bill also permits the Commissioner to examine any RRG when he deems it prudent and reasonable, and that the costs for such examinations will be the responsibility of the examined RRG.
SB 319 passed its first reading in the State Senate on 20 March and is sponsored by Senator Todd Johnson and co-sponsored by Senator’s Jim Perry and Benton Sawrey.
The Bill was also in front of the Senate Commerce and Insurance Committee on March 28. All legislation must pass three readings on the floor in each chamber.
Experienced captive professional Heather McClure has left Aon to join Helio, a new risk and insurance services company with international headquarters in Oklahoma City.
Helio will be targeting the Oklahoma business community to provide risk financing, management and consulting for commercial and captive insurance placements.
The practice is led by CEO Blake Kerr, chief strategy officer Kyle Sweet, chief operating officer Ashley Napier and McClure, general counsel and chief risk officer.
McClure spent 14 years with OU Medicine, at the University of Oklahoma, which owns a captive in Vermont, before joining Aon as chief risk advisor in its US healthcare practice in May 2021.
“I’m excited to work with clients to both lower risk in their core business while also making their risk financing programme work for them,” McClure told Captive Intelligence.
“When business leaders see this combination working hand in hand, they get energised about the things that can be done with the funds they are saving, like reinvesting in safety and operations.”
Helio will form and manage captives in Oklahoma and other domiciles, and will target Oklahoma businesses as well as those with operations in the State.
Kerr has extensive experience in accounting, financial operations, consulting and syndicating capital, while Sweet is a lawyer who has represented businesses, individual professionals, and insurance companies across the country while managing complex litigation and advising clients on risk solutions.
Napier is an experienced insurance operations professional, having previously been COO of 3000 Insurance Group, an insurance agency in Oklahoma City.
The Cayman Islands Monetary Authority (CIMA) issued 33 new insurance licenses in 2022, among the highest numbers of new licenses issued in a single year since 2013, according to new data released by the regulator.
CIMA stated it had a total of 670 international insurance at the end of 2022, the fourth consecutive growth year for the total number of insurance licensees.
Of the 670 international insurance companies, 277 are pure captives, 127 are group captives and 155 segregated portfolio companies (SPCs), meaning 559 can be classed as captives.
This does not included individual cells within the SPCs, while there are also 20 special purpose vehicles, 18 commercial insurers and 73 reinsurance companies.
Lesley Thompson, chair of the Insurance Managers Association of Cayman (IMAC), said the performance of industry in supporting captive owners and insurers navigate tough direct and reinsurance market conditions demonstrated the confidence investors have in the fundamental features of Cayman’s insurance and reinsurance sector.
“Cayman’s exceptional combination of experienced professionals, a responsible yet proportional regulatory regime and tax neutrality continue to make it the domicile of choice for international insurance/reinsurance,” Thompson said.
“Our significant growth in 2022 is a strong motivator to enhance our efforts to engage global investors with the story of the Cayman Islands insurance/reinsurance industry and push for even greater growth in 2023 and beyond.”
Total premium for the 670 companies in the international insurance sector reached $23bn in 2022 with assets under management of $74.1bn.
The vast majority (89%) of risks insured in Cayman relate to North America. Medical malpractice and workers’ compensation continue to be the largest primary lines of business of Cayman insurers with a share of 22% each, followed by general liability (13%) and property (11%).
EY Luxembourg’s insurance consulting practice is targeting the captive employee benefits sector and believes it can “complement” existing propositions in the market.
Speaking on a GCP Short released on 29 March, EY partner Emiliano Luzzi and Vittorio Zaniboni, captive and insurance excellence leader, discussed the firm’s decision two years ago to establish an insurance consulting practice in Luxembourg and their focus on employee benefits.
The consulting practice has grown to 13 people with Zaniboni joining in September 2022 having previously been chief insurance officer at General Employee Benefits.
With regards the broader insurance consultant practice that Luzzi oversees, he said he is excited for it to be part of EY’s Global Captive Network.
Luzzi explained they will be focusing on supporting captive owners on underwriting and renewal cycle management, cash flow optimisation, risk appetite and retro protection management.
“It has a long history within EY and is one of the most successful captive service providers amongst the Big Four,” he said.
“With a growing number of captives domiciled in the EU and especially Luxembourg, where we have a lot of companies moving in to establish their captives, our idea is to complement the services offered by our US colleagues by adding additional ones, which can really make a difference in the captive offering space.”
EY has not historically been known for its work on the international employee benefits side of captives, but Zaniboni believes there is a unique role a firm such as EY can play.
“I realised that none of the Big Four were structurally present in providing support to captive from the [employee benefits] consulting side,” Zaniboni said.
“We believe that we can complement the current offer that is out there already. There are a number of entities that are pretty active supporting captives on the EB side, providing knowledge and expertise on the specific benefits that are offered on the different local markets and on the transactional parts of setting up a captive, an EB captive deal.
“While there is not so much support on what I call the insurance side of the equation, meaning running the book, running the captive with EB portfolio insight and being sure that all the governance aspects are properly taken care of.
“It’s true EY hasn’t been very active in this sector so far, but I believe that there are all the necessary elements in the value proposition that we are putting on the market to make it meaningful.”
Listen to the full episode with Emiliano Luzzi and Vittorio Zaniboni here or on any podcast app. Just search for ‘Global Captive Podcast’ and click follow or subscribe.
