Wednesday, July 24, 2024

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Pure captive the right long-term solution for Boys Town

Not-for-profit Boys Town continues to look for new ways to expand the use of its Tennessee captive, but will not lose sight of its general risk financing strategy.

Omaha, Nebraska-based Boys Town has supported vulnerable and homeless young people for more than 100 years, and includes its own village campus.

Speaking on episode 101 of the Global Captive Podcast David Williams, Director of Risk Management & Safety at Boys Town, explained why the organisation was forced into considering a captive five years ago.

Long-time partner Philadelphia Insurance Company had previously provided Boys Town an umbrella policy limit of $25m, but in 2019 asked if it could be reduced to $10m.

Boys Town accepted this change and were able to buy excess coverage on top, but two years later were asked to drop again to a $5m limit.

“We went out to the market and quickly found that we couldn’t get any of the excess to drop down into that five excess-of-five layer and we couldn’t get anybody to write it unless they had that primary piece,” Williams explained.

“We didn’t want to leave Philadelphia so at that point it was like: ‘Ok, here we go, let’s start a captive to cover that’.”

Williams said he had some previous experience with captives from his time at Aon, but not in feasibility studies or formations

Once they had done the research and analysis of what lines to include Williams needed to get approval from CFO, CEO, the board of trustees and the finance chair.

“It was relatively easy,” Williams said. “We have a lot of smart people at Boys Town and they get it and they realise this is a perfect opportunity for us to use a long term vehicle to take care of our risk that we can’t get insured.”

Square Mile Insurance Company, LLC was licensed as a pure captive by the State of Tennessee on 1 September 2022, with it starting by writing the property deductible.

Today the captive insures all of the wind and hail deductibles for Boys Town, the five excess-of-five umbrella policy and the workers’ compensation deductible.

In the last year Williams has also added the medical stop loss to the captive.

“We’ve really roundtable’d this with our broker to discuss some creative ideas, but we really want to be careful,” Williams said.

“We don’t want to add so many things so quickly and get so big that we lose sight of what we’re there for. And we want to make sure it’s profitable or we have enough capital in there to support a loss if we needed to.”

Tennessee requires captives to have a resident director from the State and Williams was recommended former regulator Michael Corbett by attorney Ben Whitehouse who had worked on the formation.

“Michael’s just been an awesome resource for us, as well as Ben in Tennessee, and also Josh Clark, from Gallagher, another person that was instrumental when he was with the department and getting us over to Tennessee.”