The British Are Coming… And It’s Cool

We in the captive insurance realm have fond relations with our British friends in the industry – I mean let’s face it, you can’t go to a captive event anywhere without bumping into an ex-pat.

But this past week, it was nice to meet Peter Abbott, Her Majesty’s Consul General at the British Consulate General Boston and members of his team to talk things captive insurance. The meeting was facilitated through Brittany Nevins, Director of Captive insurance for Vermont’s Department of Economic Development and included Christine Brown, Deputy Director of Captive Insurance for Vermont’s Department of Financial Regulation.

Consul Abbott was making several virtual visits throughout the New England states to meet with leaders from key industries in each of the states – and naturally, captive insurance interested them the most out of all of Vermont’s industries.

We gave them the fascinating history of captive insurance in Vermont as well as discussed possible trade cooperation between the UK market and Vermont captives. And although there is already much collaboration between the U.S. captive industry and the London insurance world, it is always good to strengthen these ties.

Don’t forget registration is now open for VCIA’s Annual Conference this August. Click here for more information!

Thank you and I look forward to hearing from you.  

Rich Smith
VCIA President

Trust

Vermont’s Governor, Phil Scott, declared that all remaining COVID-19 restrictions in the state are lifted following a massive 80 percent vaccination rate among its eligible constituents.  Vermont is the first state to reach this important milestone and it has a lot to do with the competence of the Governor, his team, and the many folks involved with getting Vermont through this crisis.

As I mentioned in an earlier post, Commissioner Mike Pieciak and his team at the Department of Financial Regulations were heavily involved with this critical mission.  The Governor relied on Mike and his team to assist with the modelling of the COVID numbers and analysis using actuarial science. The work and reports generated by Mike’s team were used to inform the Governor, Health Commissioner, and all Vermont citizens.

The success also has to do with Vermont and its citizens. We are a small state and there is a genuine feel for community that permeates the state regardless of which town you live in or what your economic status may be. This “we are all in together” with the trust of government leaders and workers – who are our neighbors – made reaching the 80% goal achievable. It was not easy, and there are still miles to go (to quote another famous northern new Englander), but having trust in one’s neighbors, one’s community, and one’s government is key. Its that same trust Vermont captive insurance owners feel when they domicile in the Green Mountain State.

And although VCIA will be holding our annual conference virtually this year – registration is now open –  I feel confident that we will see each other again by early fall if not sooner.

Thank you and I REALLY look forward to seeing you soon.  

Rich Smith
VCIA President

Signed, Sealed and Delivered

Vermont Governor Phil Scott signed a bill this past Wednesday that makes some tweaks to Vermont’s captive statutes.

Every year, without fail, VCIA works with our members and Vermont’s Department of Financial Regulation (DFR) to bring a consensus bill to the Vermont legislature that makes rational, sensible changes that allows our industry to thrive in this State.

Sure, some years there are some sexy items in the annual captive legislation, like the creation of dormant captives (slow down my heart!).  However, the changes usually look at streamlining and clarifying the law to make it both easier to navigate the rules to the game and do the business of captives.  This year was one of those years.

When starting a captive, there is a certain practical order to things, i.e., the captive needs to be incorporated before a license can be granted or needs a tax ID number before bank accounts can be opened.  The new law will bring the statute in line with modern practices and procedures. 

The act also reorders language regarding protected cells to make it easier to follow. Similarly, captive statute references the traditional insurance statutes when it comes to mergers and redomestications. With enough difference in the captive insurance merger and redomestication language, the new act creates a separate section within the captive statute.

Finally, the changes in Vermont law will make it easier for captives to merge, provided there is unanimous consent of the parties (shareholders, members, or policyholders).

There are a couple of tweaks, but like I said, there was nothing earth shattering in the new act. Just another piece of legislation advancing Vermont’s captive insurance industry.

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Confirmed: Captives Are Hot

A couple recent reports confirm what we already know in the captive world: we are in a hot captive insurance market for the foreseeable future.

A new report by the Swiss Re Institute confirms that the disruption and uncertainty in global commercial insurance markets is prompting companies to explore captive insurance. “Exacerbated by uncertainty created by the pandemic, the current rate hardening is the strongest in 20 years and this is expected to continue into 2022.”  This coincides with a Marsh survey in September 2020 that found 59% of respondents expected to expand their captive use by adding more lines of coverage, increasing retentions in the captive.

Interestingly, the report also highlights the fact that there are now more captive insurance companies than traditional insurers globally, estimated at more than 7000 captives domiciled in more than 70 jurisdictions.  The US remains the world’s leading market for captive insurance, used by up to 70% of Fortune 500 companies. But with high saturation among large corporations in North America and Europe, the use of captives is spreading geographically to Asia and Latin America.

Another report confirming the continued growth in the captive space was recently released by the Insurance Information Institute (Triple-I) called A Comprehensive Evaluation of the Member-Owned Group Captive Option. It’s key finding has been a touchstone of the captive insurance industry since the beginning: Interest in captives flourishes when commercial insurance becomes more expensive and less available.

As I said, neither of these reports are a surprise to the captive insurance community. But it does confirm that the more traditional insurance world is taking notice!

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Hit Me with Your Best Shot

I just received my first shot of the COVID vaccine yesterday, and it provided a real boost of optimism that we are heading out of this weird nightmare. I would never have guessed how excited I’d be about getting a jab in the arm with a sharp needle!

Governor Scott of Vermont, who has been incredibly disciplined about taking necessary precautions, has said he expects the state to be more or less open by July 4th.  As we start to head into nicer weather up here in the Great North, that is  good news. Still a lot to be worried about when I scan the news from around the world: huge spikes in Brazil, slow rollout of vaccines in Europe, the fact that many in the developing world won’t see vaccinations until next year.

COVID is indeed an international issue – not only is there a truly humanitarian issue at stake, but the pace of vaccinations around the world will impact us all.  That’s why it was interesting to hear about the new Global Health Risk Facility (GHRF). The GHRF is a highly collaborative undertaking that insures the transportation and storage of COVID-19 vaccines, and other critical health commodities, for the benefit of low, middle, and upper-middle-income countries. The GHRF has been developed by Parsyl, a Lloyd’s Lab alumni, in close partnership with AXA XL, Ascot and McGill and Partners. AXA XL will lead the risk management and local policy implementation.

What’s also interesting (though maybe not a big surprise) is that  many of the pharmaceutical companies involved with the development and manufacturing of the vaccines chose to base their captives here in Vermont. How cool is that?! Pfizer, Johnson & Johnson, and AstraZeneca all domicile their captive insurance companies here, for good reason.

I look forward to learning  more about how captives were utilized in these extraordinary times. Which is exactly what will happening as part of the VCIA Signature Series, this coming Tuesday, April 13th! One of our sessions is on disaster (and unforeseen event) preparedness and recovery. We will learn from captive owners whose programs have navigated the treacherousness of the pandemic, sure to be fascinating. Also in the line-up for that day is a great session about cyber-risk and it’s ever-expanding nature of threat. The day ends with a private forum for captive owners to get together, see each other (via camera), share ideas and collaborate. Should be a great day and it’s not too late for you to register! More info at http://www.vcia.com.  

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Slippery Slope

Just as we here in Vermont are starting to pack up our skis (not the hardcore, of course), the captive insurance industry is facing a new slippery slope.

Legislation approved March 9 by the Washington State Senate would set new requirements for captive insurance companies licensed in other domiciles but doing business in Washington State.  Under the legislation, S.B. 5315, captives licensed elsewhere and operating in Washington would be required to pay an initial registration fee of $2,500 and be assessed an annual two percent premium tax on insurance provided to their parents or affiliates for Washington risks. Captives affiliated with public institutions of higher education would be exempt from the premium tax.

Besides being poorly drafted, the bill sets a terrible precedent whereby acquiescing some regulatory oversight by the Washington State insurance commissioner on captives domiciled in other states. This is the culmination of a battle over the past few years between Washington’s Office of Insurance (OIC) and reality. For whatever reason, the OIC has not liked that companies in Washington can set up captives to better manage the risks of their organizations. The OIC seems to have turned a blind eye on the benefits of captives to these organizations, and in turn to the State of Washington, and instead sniffly says “we don’t approve”.  

For the companies and organizations headquartered in Washington, it has been frustrating I know. Finding a solution that gives some clarity to their operations as well as boundaries around taxes and potential fines forced a deal that neither helps the State of Washington, the companies doing business there, nor  the broader captive community. At some point, this law if passed could discourage the use of captives by Washington State businesses and nonprofits. All it will do is limit control and add costs. Washington could have instituted a self-procurement tax like several other states – instead, the OIC chose pride over prudence.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Kickin’ it Off!

Great kickoff event for the 40th Anniversary of captive insurance in the State of Vermont this week. Each year in January, VCIA Members visit the Vermont State House for our annual Legislative Day. This special event highlights the successful working relationship between our Association and the State’s elected and appointed leaders.

This year, we switched to a virtual Legislative Day due to the pandemic and it was one of the most popular we have hosted! We started the day with a Q&A session from the leadership team at the Vermont Department of Financial Regulation’s Captive Division. They reviewed recent events and changes at DFR, as well as answered questions on what they saw on the regulatory horizon.

Midafternoon, DFR Commissioner Mike Pieciak hosted an hour-long captive industry review, highlighting 40 years of innovation and superlative regulation in Vermont. Mike also talked about how members of the Captive Division and others in DFR had taken on important roles in tackling the COVID-19 emergency in the State – the Governor drew on the expertise and competence of Mike and his department in modeling the pandemic as well as assisting in the distribution of COVID resources to Vermonters.

DFR’s Dave Provost and Sandy Bigglestone provided an overview of the captive industry in Vermont to legislators, members and guests attending, followed by Brittany Nevins, Captive Insurance Economic Development Director at Vermont’s Agency of Commerce, who gave the economic and market report. Yours truly did a quick summary of VCIA, before passing the baton to Julie Bordo, President & CEO, PCH Mutual Insurance Co. Inc. (RRG), who hit it out of the park with a presentation of her captive program and the important role Vermont has played in its success.

The final event was a zoom meeting with VCIA members and the new leaders under the gold dome. Lt. Gov. Molly Brown, Speaker of the House Jill Krowinski, and Senate President Pro Tem Becca Balint shared their valuable time with us talking about the issues and priorities they see ahead for the State of Vermont.  The enthusiasm they all brought to our meeting with our members contributed enormously to the success of the day.  Sen. Balint recounted the time as a new member of the Senate Finance Committee she reported out the captive bill on the Senate floor with a song! (Something she had to apologize to her colleagues for later 😊).

The cherry on top (literally) is that the State of Vermont provided a Lake Champlain Chocolate Thank You Gift Basket to a randomly chosen attendee of Legislative Day. The winner was our good friend Adam Dubuque of Johnson Lambert who has been in the industry for 18 years – almost half of the 40 years captives have been in business in Vermont! Yikes 😉

Thank you again to all of you who joined us this week. I look forward to hearing from you.

Rich Smith,
VCIA President

2020: Don’t Let the Door Hit You on the Way Out!

Season’s Greetings and Happy Holidays to all our VCIA family! I think we all will be glad to see the backside of 2020 and look forward to happier times in 2021. It was tough on all of us, and tragic for many, as we climb out of the grips of the pandemic. With the advent of the vaccines there is lightness on the horizon… even as we head into our shortest days.

2020 was not all bad, however. The captive industry continues to see exponential growth in numbers of licenses and interest around the country and around the world. Vermont has licensed more that 35 captives (not including many, many cells) already, and there is a stack of them waiting to get out of the gate on January 1st.

This is the time of year to look back on things to be grateful for as well. Now, more than ever, family and friends are so important to our wellbeing. I am also extremely grateful for working in such a wonderful and collaborative industry – it truly feels like family as well. My thanks to Dave Provost, Sandy Bigglestone, and their team at Vermont’s Department of Financial Regulation for their continued steadfast regulation; to Brittany Nevins, who so quickly and successfully slipped into Ian Davis’ shoes fighting to keep Vermont as the premier captive insurance domicile. Their good work flows beyond the borders of Vermont, positively impacting the captive industry overall.

Thank you to VCIA’s Board of Directors for all their support and guidance over the past year to the association, especially during these challenging times. I want to especially thank Jan Klodowski of Agrisurance Inc. as our chair until October and the captive attorney extraordinaire, Stephanie Mapes of Paul Frank + Collins, as out new chair since then.  Many thanks to our new vice chair 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, Derick White of SRS, Tracy Hassett of EdHealth and Jason Palmer of Willis Towers Watson.  And a fond farewell and heartfelt thanks to former board chair Wilda Seymour who has recently stepped off the board. All have provided their amazing talents and time to the association.

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!

Most of all, thank you for all your support and see you next year!

Rich Smith
VCIA President

Black Swans for Thanksgiving

I, for one, am glad its Thanksgiving next week. First, I love the feast! Family and friends (well, er, no friends this year) gather for dinner and conversation – no gifts, no chocolates, no decorations. Just like me: boring but predictable. Second, like everybody I could use a break from the craziness that is 2020, and Thanksgiving does allow one the opportunity to take a reality “time out” at least for a day.

But as my mind drifted to turkey, another bird edged its way into my brain. The proverbial black swan that is at the top of mind for many of us in the insurance community. An article yesterday in the London Times by Alex Wright highlights how many in our world are working to create insurance solutions for things that historically have been labeled uninsurable, like the pandemic.

As Alex outlined in his article, traditionally, companies have mitigated against risk by taking out an insurance policy. Underwriters would spend hours poring over reams of historical data to determine the likelihood of the risk occurring before giving a quote.  But black swans don’t fit this mode well, as by definition they defy historical data – at least in the linear manner we usually think of.

The burgeoning world of artificial intelligence (AI) and machine-learning is looking to change that. The key benefit of AI in insurance is that it can quickly process large data sets and identify significant trends that mere mortals are unable to do.

Dr. Marcus Schmalbach created the VUCA (volatility, uncertainty, complexity and ambiguity) World Risk Index, a parametric index that uses machine-learning to gather data from a range of trusted and verifiable sources, many of which aren’t considered in traditional underwriting. That data is then rigorously analyzed alongside information the technology has gathered from previous experiences to look for patterns and links between events and determine the likelihood of a major event occurring. Among the areas his group has successfully modelled is business interruption loss in the event of a pandemic based on the data they crunched.

Climate change, natural disasters, political and trade conflicts, all could be better priced in the insurance world with new AI applications. AI can also reduce paperwork and the time taken to receive a quote or claim. Using parametrics, AI can also establish if an event has happened, thereby triggering payouts and avoiding any disputes.  Captives are well poised to take advantage of such innovation.

While nobody can predict the future with 100% accuracy, AI will allow insurers to detect anomalies that will help anticipate future events, like pandemics, and maybe better prepare us for the black swans. Perhaps roast black swan instead of turkey….

Thanks, as always, for your continued support in these trying times. I look forward to hearing from you!

Rich Smith
VCIA President

It’s an Election…. Now What Happens?

In case you may have missed it, we had a national election this week where the United States picked who will be our President for the next four years… well, almost. As of this filing, the winner has not been declared and there is talk of court cases and recounts. Such is the way of our world these days.

I have been asked several times (OK, once) how I think the captive industry might be impacted under a Biden administration if he were to win. The short answer, from my perspective, is probably not much. Certainly, there are macro issues that may change if Biden were to tack toward a more open border economy than Trump as seems likely. And he is probably going to tighten some of the regulations that Trump loosened in his four years. Perhaps those policies offset each other, but all the same, I don’t think it will have a huge impact on our industry. And I don’t see much of a change in the IRS’s attitude against 831(b)s!

The hardening of the traditional (re)insurance marketplace that ostensibly started last year looks like it will keep steaming ahead into the upcoming year. That will most likely have a greater impact on our industry than policy shifts under a new administration. Certainly, policies impacting the economy, world affairs, and the continuing pandemic will have an effect, but captives are very good about adapting to new risks and economic environments.

One policy change that might provide a little boost to captive formations is if Biden raises the corporate income tax that was lowered under Trump. The lowering of the corporate income tax decreased the federal tax benefit to captive owners, as the accelerated deduction for losses incurred but not recorded will be worth less at a 21 percent tax rate than at the previous rate.  I will be curious to see if a raise to the corporate income tax (if it happens) will have a perceptible effect in our current market.

So, my advice to you all is to strike “impact to captives” off the list of things you are worried about regardless of who ultimately wins. However, if you want to hear more about what may be coming our way in terms of policies, laws and regulations that will impact the captive industry, join VCIA’s annual members-only Captive State of the Union with Dave Provost, myself and other luminaries as we discuss the outlook as part of VCIA’s Annual General Meeting on November 18th. Click here for full information and how to register.

Thanks, as always, for your continued support in these trying times. I look forward to hearing from you!

Rich Smith
VCIA President