Summer’s here and it’s Grillin’ Season

 

I know last week I said summer has finally arrived here in Vermont after a tough spring with 80 degrees and sunny, well that’s nothing to the 90 degrees we had the past couple of days. And like I said that means it’s grilling season.

That reminds me that I am looking forward to my grilling of Vermont’s Commissioner of Financial Regulation, Mike Pieciak! Well, not that I am planning on a “grilling”, perhaps just a light “sautéing” instead. Mike is going to join me at the end of the first day of VCIA’s Virtual Conference to discuss.

Commissioner Pieciak will join me in a conversation with me on major issues impacting the captive insurance industry in Vermont, at the NAIC and beyond. We will hear Mike’s thoughts on transformative changes due to the COVID-19, the current regulatory environment, and other things I plan to spring on him.

Now Mike is a very smart guy and pretty unflappable, but I am going to do my best Mike Wallace on him (for all of you old enough to know the famed 60 Minutes reporter). More information to follow – I hope you can join us this August!

Rich Smith
VCIA President

There’s More to the Story…

panelA key component in a captive program’s success is its ability to adapt to changing market conditions, economic turbulence, new & emerging risk and even the recent changes in the definition of employment. Even in the midst of this dangerous pandemic, underlying issues impacting the captive industry were emerging.

VCIA will be hosting a webinar next Thursday, May 14th, that will explore ways to shift captive strategy to respond to the business needs of your parent company and optimize your program in our changing market.  Our presenters will demonstrate captive success with emerging risks, illustrate current challenges and keys to achieving a positive outcome, and explore what questions to ask to create a successful pathway to deal with such unforeseen events such as COVID-19.

Our speakers will be four leading thinkers in the captive industry:  Andrew Baillie is the Program Director, Global Insurance for The AES Corporation, a global power producer and distributor, where he supports risk management oversight and the procurement of insurance, as well as managing the company’s large, Vermont-based Captive Insurance Company; Steven Bauman works for AXA XL serving as Head of Global Programs and Captive Practice in North America; Ed Koral is a managing director with BDO’s Insurance Risk Advisory group; and Christine Brown is Assistant Director with the Vermont Department of Financial Regulation – Captive Division, where she directly supports the Director of Captive Insurance and Deputy Commissioner of Captives with licensing, industry outreach and strategic planning.

Join us to learn how to remain agile during these challenging times. Go to www.vcia.com and register today.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

May Day!

IanMay 1st is here and with it the signs of spring… new beginnings.

As you all probably have heard by now, Vermont’s intrepid Ian Davis is leaving the Mother Ship and heading off to a new position within the captive family as Senior Vice President, Captive Insurance Relationship Manager at People’s United Bank. Ian will be responsible for business development, qualification, expansion and overall relationship management for the bank’s captive insurance portfolio.

Ian served as Director of Financial Services at the Vermont Department of Economic Development, leading the marketing and business development activities in support of the State’s captive insurance industry for three years. In that role he stepped into large shoes left by Dan Towle, who is the current president of CICA.

I am so glad for Ian in his new position and so, so glad he is staying in our world of captive insurance. Don’t get me wrong: he will be missed in his role with the State as he was the consummate professional, truly representing Vermont’s best in captive insurance. But very smart of People’s to recognize talent by putting Ian in a leadership role in their captive insurance arena.

As the State looks to fill Ian’s position, the estimable Tim Tierney will step in as interim director. Tim is Director of Recruitment and International Trade at Vermont’s Department of Economic Development. He already was helping us on our planned Mexico Trade Mission this September, and I am looking forward to continuing our work.

So goodbye… and welcome, Ian! I look forward to our continued partnership and, more importantly, our good friendship.

Thank you and stay safe!

Rich Smith
VCIA President

COVID – 19 (are virtual happy hours our future?)

Day Five of our quarantine. My family made the decision to self-isolate when my son returned from San Francisco this past Monday. His work took him on the subway, he was working in a restaurant downtown, and he took a cross-country flight so it seemed like a no brainer. Certainly, it is a little easier to self-isolate in rural Vermont than in downtown New York, or even Burlington, Vermont.

We are certainly in strange times and unchartered territory for most of us – even those of us whose job is risk management! I have found myself rationalizing that things can’t get that bad and that it will clear up soon, even with the reality slamming us in the face. It is hard for any person, company or government to jump to more draconian measures, even when we see what is happening in other places hit by the virus before the United States. A little dose of paranoia might make us, as a society, get a little ahead of the curve. Maybe its time to trust your inner Cassandra*.

That being said, my wife and I joined a few friends of ours on a virtual cocktail hour last night. I opened a bottle of wine, brought out some cheese, and then connected with the two other couples through videoconferencing. It sounds a little silly, but it worked great – and we were able to get a dose of social interaction at our kitchen table!

It still doesn’t explain why for some reason I stocked up on potato chips and Ben & Jerry’s last Sunday…

Thank you and stay safe!

Rich Smith
VCIA President

*Cassandra was a woman in Greek mythology cursed to utter true prophecies, but never to be believed. In modern usage her name is employed as a rhetorical device to indicate someone whose accurate prophecies are not believed.

COVID – 19

The complexity and uncertainty of the coronavirus or COVID-19 outbreak is worrisome, to put it mildly. As of this writing, the virus has infected 90,000 people and left more than 3,000 people dead, mostly in China, but the spike in cases around the world remind me of those doomsday movies where it shows a map with the plague hopping from one place to another with ease.  When we get mixed messages from our leaders, and health experts debate the proper response, it is not surprising to see a growing anxiety in the general populace.

I have heard from two large companies in the insurance world that have very different responses for their employees. One has banned all non-essential travel not only overseas, but here in the US as well. The other has taken a more wait and see approach, advising employees to use “common sense” when traveling. Many businesses have asked their employees to work from homes – which won’t help someone on the factory floor or who works in a restaurant.

A couple of things come to mind as I try to get my head around the potential impact to captives. First, most traditional insurance policies have exclusions for pandemics in their policies. According to the Insurance Journal, the world’s largest insurers learned lessons from previous health crises, including the 2003 SARS outbreak, and have tightened up their policies, inserting communicable-disease exclusions to prevent potential losses. That means consumers and companies will bear the brunt of the cost for disruptions related to the virus. Whether captive insurance can help mitigate potential losses is something that we have begun to look into more closely.

The other impact is something captives and traditional insurers have been dealing with for some time. Investment returns have been stingy for the insurance world for many years and many have diversified away from more traditional bonds to equities. Investment losses rather than claims will likely cause the biggest hit to insurers from the coronavirus outbreak, according to a report from Moody’s Investor Services Inc.  Moody’s said, “A prolonged period of market weakness would also hurt insurers’ investment income and reduce their access to capital…”

As for me, I seem to swing back and forth after every news story I hear on the virus on what “common sense” means. Without a doubt, the COVID-19 has already had an impact on the world economy and our general sense of health and safety.  I believe in the resilience of the captive insurance industry and know that many of the people involved with risk management at their organizations will play an important part in stemming this outbreak.  Let’s all hope that we see the end of this sooner rather than later.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

Come Together

rich-in-washington

This week a group from the Captive Association Leadership Council (CALC) coordinated a visit to Washington DC to provide an educational baseline on the captive insurance industry to key policymakers and staff.  The idea is that providing a baseline on captives with the participation of numerous state captive associations will build a foundation for future discussions when presented with potentially adverse actions in Washington or opportunities to advance the industry as a whole.

CALC is an informal coalition representing most captive association leaders in the industry. This first visit as a coordinated group included me, Dan Towle from CICA, Joe Deems from NRRA, Joe Holahan representing the Captive Insurance Council of the District of Columbia, and Julie Bordo, President of PHC Mutual Insurance Company RRG (a captive owner and VCIA Member).

We met with staff members of key committees in the House and Senate (House Financial Services and Senate Banking) in the morning before heading over to Treasury to meet with key members of the Federal Insurance Office and Tax Policy. We explained the role of captives and the importance not only to the organizations that utilize them, but to the economy overall. We discussed some of the issues regarding the bad actors misusing captives, as well as tried to dispel myths regarding the industry. We heard directly from Treasury on issues they had concerning captives, which provided us with helpful insight.

This CALC trip to Washington DC is the first of what we hope will be many, to strengthen connections with key committee staff as well as home-state Senators and Members of Congress. Our inaugural trip was a success – connections were established with key staff who we will reconnect with if and when legislative issues arise regarding captives or RRGs.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

Tough Mudder

Business Insurance recently ran a story “Extreme sports test liability protections” (Feb 17) which described the challenges extreme race organizations have with potential liability issues.

“Drowning,” “near-drowning,” “animal bites,” “permanent paralysis” and “death” are all listed in waivers for these events. Signage posted by the organizers of race Tough Mudder — a major name in the sport — famously tells participants sweating through the obstacles to “remember, you signed a death waiver.” Yikes!

According to the article, in parallel with the rising popularity of the events are a growing number of lawsuits alleging organizers are liable for injuries incurred on the courses of the events.  The article goes on to say several companies in the industry are suffering financial problems, although it is unclear whether liability issues are contributing to their troubles.

After reading the story, two things come to mind.  First, these organizations should take a page from the U.S. Hang Gliding and Paragliding Association. In 2016, the Association formed a risk retention group (RRG) domiciled in Vermont. With a risk retention group, many people, companies or organizations pool their money and insure themselves collectively. The key requirement is that they are like entities — in this case hang gliders and paragliders — but it could be extreme racing organizations just as well.

“Working with Vermont was wonderful,” Tim Herr, secretary and risk management officer for Recreation Risk Retention Group Inc., (RRRG) said. “They understand the small niche insurance market. The first meeting is always filled with trepidation, but we showed them our plans and they understood what we needed and wanted to do.”  RRRG now has 29 member groups covering the flights of more than 9,000 USHPA members, 83 USHPA chapters, and more than 30,000 hang gliding and paragliding students annually.

The second thing that comes to mind upon reading the BI story is this:  did you know that some members of Vermont’s very own Department of Financial Regulation captive staff participate in these crazy races?! Deputy Commissioner Dave Provost himself, and Director of Examinations Dan Petterson have regularly put themselves at great bodily harm in these extreme obstacle course events.  And I think Sandy Bigglestone, Director of Captives, has tried it at least once too!

So, our two takeaways today are:

  1. Vermont regulators have personal knowledge of risks associated with extreme sports, and are willing and able to assist with unique risks from organizations of all sorts; and
  2. Don’t mess with Vermont (or at least, Vermont’s DFR)!

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

Zombieland

It’s a little unfortunate that months and years of good work to close the gap at the NAIC, and with others, on the misconceptions of the regulation of Risk Retention Groups can be set back in what amounts to an instant.

As many of you know, with the hard work and leadership of Sandy Bigglestone and Christine Brown of Vermont’s Department of Financial Regulation, and Sean O’Donnell of the DC Department of Insurance, Securities and Banking, there was much progress on creating a common regulatory approach to RRGs and educating non-domiciliary states to that end under the auspices of the NAIC’s RRG Task Force.

Over the past year, the Task Force has been working diligently to provide additional guidance to both state insurance regulators and industry regarding the registration process for RRGs in non-domestic states. The process started last year with a letter from the National Risk Retention Association (NRRA) citing concerns regarding fees and delays in the review of registration forms, supported by a letter from the VCIA. The discussion that followed also raised concerns from non-domiciliary states, such as incomplete registration forms or potentially non-compliant RRGs. As a result, a drafting group was formed to develop frequently asked questions (FAQ) and best practices documents, and updates to the NAIC Uniform Risk Retention Group Registration Form, which made great progress toward the goal.

Unfortunately, in response to a bill that would expand the Liability Risk Retention Act to allow certain, narrowly defined, RRGs to provide property, zombie tropes about how well RRGs are regulated rose again from the grave. The NAIC sent a letter opposing H.R. 4523, the Nonprofit Property Protection Act, and stated in the letter “RRGs have historically had a higher insolvency rate when compared to admitted insurers.”  The letter was signed by the current NAIC president-elect, Ray Farmer, Director of South Carolina Department of Insurance, among others.

As a joint response from VCIA, CICA and NRRA pointed out, this is simply untrue.  According to a study conducted by the Risk Retention Reporter, which uses data from A.M. Best for the period 1987 to 2017, RRGs had a yearly insolvency rate of 1.2% as opposed to 1.5% for the entire property-casualty and life and health marketplace.  In brief, RRGs during this 30-year period were less likely to become insolvent that traditional carriers.

It is noteworthy that the NAIC did not cite any authority for its conclusion.  And at the actual hearing for the bill this week Chlora Lindley-Myers, Director of the Missouri Department of Commerce & Insurance, repeated the claim – again with no backup data!  RRGs are subject to a different regulatory regime than traditional insurers, but that does not mean that the standard is “lower”. RRG regulation by the domiciliary state is subject to the accreditation process by the NAIC itself.

I hope this does not mean a complete move backward at the NAIC regarding RRGs. I have immense faith in Vermont’s regulators, and other allies in the industry, to keep pushing forward – and finally burying these long-discredited zombies.

To view a copy of the joint letter click here.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

And We Are Off!

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Thanks to all of you who joined us for another successful VCIA Legislative Day this week at Vermont’s State House in bustling Montpelier! Our members, including many who came from afar, got to hear from Vermont’s new Secretary of Commerce Lindsay Kurrle, as well as Vermont’s Commissioner of Financial Regulation Mike Pieciak during our luncheon. Later in the day our members met and heard from Vermont’s Lt. Gov. David Zuckerman, speaker of the House Mitzi Johnson, and House Minority Leader Patty McCoy. Although these dignitaries represent different parties under the Gold Dome, what they do have in common is their unwavering support of the captive insurance industry in Vermont.

At our luncheon, special guest economist Jeff Carr unveiled a recently completed economic contribution study of the captive insurance industry in Vermont. Suffice it to say that this industry is a tiny powerhouse here in Vermont! Immediately following, the folks from DFR provided a Q & A session for our members on recent updates and activities at the department. We provided a live stream via Facebook for our members.

In the afternoon, we testified before the House Commerce Committee, where Vermont’s Director of Financial Services, Ian Davis, and I gave updates on VCIA and the state of the industry. New VCIA Board Member, Tracy Hassett, President of EdHealth, did a terrific job describing her organization and the reasons they formed a captive in Vermont. In Senate Finance, Ian and I repeated our testimony and Deputy Commissioner Dave Provost concluded with a review of this year’s captive bill, S-255.

The great news is that the following day, Senate Finance voted out the bill 7-0 clearing the first hurdle in the legislative process. There are several sections of the bill, including lowering the minimum capital for sponsored captives from $250,000 to $100,000. The bill also proposes to expand to sponsored cell captives what we passed last year to all captives: provide flexibility in investments by giving companies the option to follow the old rules or develop a plan for DFR approval. Finally, the bill proposes to clarify disclosure requirements for agency captives – we may have been too prescriptive in the disclosure requirement built into the statute when passed last year.

Please click here to access a copy of the bill.

Thank you again to all of you who participated, and I look forward to hearing from you!

Rich Smith
VCIA President

Happy Holidays and See You in 2020

Season’s Greetings and Happy Holidays to all of the VCIA family! It was another great year for captives in Vermont, and next year portends to be even better for the industry as a whole.

As I have talked to many of VCIA’s members in the course of the past month or so, “busy” seems to be the word that encapsulates the tone. I think that has been due to two main factors: the increasing sophistication of risk managers in smaller and medium-sized organizations, and the beginnings of a hardening insurance marketplace.

Vermont is set to add another 20+ captives to its stable of over 1000 licenses by year’s end, notwithstanding the competition, due in large part to Dave Provost and his team at DFR’s continued steadfast regulation, Ian Davis’ doggedness in pursuing captive leads, and captive service providers, who continue to recognize Vermont as the premier captive insurance domicile! Overall VCIA membership has increased 2% this year with 446 member organizations thanks to Janice Valgoi and her tireless work in adding to our roles.

I want to say thank you to VCIA’s Board of Directors for all their support and guidance over the past year to the association. I want to especially thank Wilda Seymour of Franklin Casualty Insurance Company RRG for her contribution as board chair starting in October of 2018, and welcome back Jan Klodowski of Agrisurance Inc. as our chair as of this past October.  Longtime captive expert attorney extraordinaire, Stephanie Mapes of Paul Frank + Collins, came on as our vice-chair.  Many thanks to Andrew Baillie of AES Global Insurance Company, independent consultant Donna Blair, Lawrence Cook of Sedgwick, Dennis Silvia of Cedar Consulting, Anne Marie Towle of Hylant, and Derick White of SRS. And on behalf of the staff, I would also like to welcome Tracy Hassett of EdHealth and Jason Palmer of Willis Towers Watson to the board.

We continue our strong focus on events and on legislative and regulatory issues on behalf of our members. Many thanks to Jim McIntyre, and his partner Chrys Lemon, in Washington and Jamie Feehan in Vermont for their wonderful service to VCIA.   And my great thanks to the VCIA staff! Without their hard work, smarts and enthusiasm, we would not be able to accomplish any of the wonderful things we do for our members.  Thank you to Diane Leach, Elizabeth Halpern, Peggy Companion, Janice Valgoi, Dave Rapuano and Megan Precourt – you are all terrific!

Most of all, thank you for all your support and another great year!

Rich Smith
VCIA President