Hopefully you have all had a good end-of-the-year, time with family and friends, and are now looking ahead to the shiny New Year into which we have just moved. Let’s admit it looks rough both universally and in the world of insurance.  The prognostications for both have been dim. The world is more unstable and dangerous than it has been in decades. I remember in the 1990’s (I guess ancient history now) after the fall of communism in Russia and the rest of Europe, with the economy chugging along at a good clip, it looked like we, and I mean the world as a whole, had turned a corner. My how naïve I was.

That being said, I just came from an economic forum where the senior macroeconomist for PNC Financial Services Group reported that the US economy looks like we will have decent (if not great) growth for the next few years, taking into consideration the threats that still remain, mostly outside of the US. After a melee of graphs and numbers, the bottom line for 2016 is another moderate year of overall economic growth with real GDP up by 2.3-2.5 percent, pushing the unemployment rate down to near 4.6 percent late next year, and inflation somewhat higher at about 1.8 percent as gasoline prices stop falling.  Areas of economic weakness in 2016 will continue to include energy/mining production, non-auto related manufacturing, and exports, with a reduction in bloated inventories in the first half of next year also damping economic growth. Areas of strength in 2016 will continue to include consumer spending, housing construction and sales, auto sales and production, state and local government infrastructure spending including Federal government spending that will start to ramp up.

The insurance industry continues to be buffeted by lower interest rates, tighter underwriting, and overall global economic slag, but I have great faith that the captive insurance industry will continue to grow. Insurance feeds off risk, and captives are the most nimble risk bearing entities there are. With that, we have seen growth in smaller to mid-sized organizations looking at forming captives, even in these uncertain times, as the control of one’s risk becomes more central to the strategic plans of more and more entities. After a tighter growth year in 2014 for captive formations in Vermont, 2015 was a terrific year, beating our average over the past 10 years (the numbers will be out next week, so stay tuned).  Captives are also funding new emerging risks as well. Cyber risk continues to grow as does the increasing use of captives for employee benefits for organizations of all sizes.

Interestingly we have seen a number of big insurers and brokers establish sponsored cell captive companies in Vermont, with Zurich being the latest to join Aon, Willis and AIG.  Sponsored cell captive insurance companies provide the sponsor of the captive program a great deal of flexibility by allowing for individual cells that can be customized to each participant. This type of structure is growing in popularity because of the options and customization it provides. It can also be a good way for smaller companies to access the captive insurance marketplace, because typically the startup cost is less than establishing their own captive.

So, get to the gym before your New Year’s resolutions run out of steam, and don’t be so glum! Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President