Another Year, Another Bill


I want to thank all those VCIA Members who travelled to Montpelier last week during one of our ongoing snow storms to join Vermont Governor Phil Scott in signing this year’s captive bill into law.

H.764, introduced during VCIA’s Legislative Day in  January, quickly made its way through the legislative process and on to the Governor’s desk a week or so ago. Every year, VCIA and the State work to improve the ease of doing business in Vermont by proposing refinements to Vermont’s captive bill. This year’s bill included some common-sense changes to our annual filing date and reporting requirements which will help streamline processes and provide a new level of consistency for our regulated entities.

As Governor Scott said at the signing, “It is critical that we are responsive to the needs of the industry. These improvements to our captive legislation illustrate Vermont’s ongoing commitment to the captive insurance industry…  This bill will further advance Vermont’s reputation as the ‘Gold Standard’ of domiciles and will provide greater flexibility and consistency for our companies going forward.”

Joining the Governor was Department of Financial Regulation Commissioner Mike Pieciak, Deputy Commissioner Dave Provost, Director of Financial Services Ian Davis, and a number of DFR staffers. With me were VCIA Members Jonathan McKenzie from Alterna, Pattie Henderson from SRS, Dustin Partlow from JLT, Steve Killoran from Maple Capital (straight from maple sugaring – or so he looks in the picture!), Sandi Prescott from Performa, David White from AIG, David Angus from The Angus Law Firm, Keith Jones from National Life, Kristen Sharrow from Johnson Lambert, and Bill Mourelatos and Patti Pallito from Aon. Thank you all for coming on down!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Blockchain Gang


If you are like me, no matter how many times you see a You Tube video on how blockchain works – you think you understand it. Then someone asks you to explain it and all you say is, “you know, it’s a distributed ledger system” like you know what the hell that means… but I digress.

Some recent articles in insurance trade mags noted that insurers need to be thinking about blockchain technology, as well as virtual currencies like bitcoin, and how to approach these areas of emerging risk as they become harder to ignore.  As a quick reminder, blockchain is the technology used for verifying and recording virtual currency transactions through a shared database. And virtual currency, such as bitcoin, is an unregulated digital form of currency that can be used as a substitute for legally recognized currency and eliminates the so-called “middle-man,” which includes banks and clearing houses.

Because it has only recently become more prevalent, and the hazards of blockchain technology and virtual currencies are still being quantified, there is hesitation among insurers about whether these risks are insurable – which sounds like an opportunity for the captive insurance community.  One emerging risk in particular, developer errors and omissions, represents potentially the most critical risk that threatens the survivability of a blockchain startup. Given the concerns regarding data and privacy risk, coupled with the SEC taking a closer look at digital currencies and blockchain technology, insurers have shied away from this space.

On the flip side of the coin, blockchain has the potential to become a useful tool in the transaction of insurance in the coming years.

One such trial, Allianz Risk Transfer (ART) partnered with Ernst & Young and digital agency Ginetta to create a blockchain prototype solution.  Their prototype looks at three common process flows in the captive insurance cycle – annual policy renewals, premium payments and claims submission and settlement. It translates these processes into the distributed ledger environment decreasing the time from start to policy, policy to premium and claim to settlement.

Additional use cases focusing on first notice of loss, subrogation and parametric insurance are being developed as well.  ART is one of several groups involved in the development of distributed ledger technology for the insurance and financial services industries, as the insurance world grapples with this emerging technology.

Correspondingly, a new law in Vermont takes advantage of the blockchain’s ability to confirm that information transferred to it is authentic by presuming that documents written to the blockchain are authentic for purposes of any legal proceeding in a Vermont court. Once again, Vermont law is poised and ready for changes that may soon come to the forefront in the financial services industry.

All this presents an interesting dynamic on the future of captive insurance. Captives are leaders in these types of shifts in the insurance world so I would not be surprised to see us catch this new wave and ride it to success!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Hard Market, Schmard Market

chartThe siren song begins at the change of every year: based on historic losses in the year just ending, we can expect to see a hardening of the insurance market in the upcoming year. In fact, by all reports last year’s losses were high – Swiss Re’s preliminary sigma estimates for insured global losses resulting from natural and man-made disasters in 2017 are around $136 billion, well above the annual average of the previous 10 years and the third highest since sigma records began in 1970. Total economic losses soared in 2017 to $306 billion from $188 billion in 2016 primarily due to the three hurricanes—Harvey, Irma, and Maria—that hit the United States and the Caribbean, and wildfires in California.

The fact that we are seeing a “new normal” in loss rates certainly will be exacerbated by climate change – but that is a different story. To me, the story continues to be how even with last year’s near record losses, the insurance industry (which in the past would have triggered a substantive hardening of rates) has barely registered a blip.

One area we see this in is the reinsurance market. As stated in an article in Business Insurance, David Priebe, New York-based vice chairman of Guy Carpenter, said “Despite substantial catastrophe losses in 2017, the market demonstrated significant resilience with no notable capital withdrawal and moderate price increases.”

There are good reasons why the insurance marketplace remains so stable. Better loss control, better data, and more capital looking for a home have all contributed to this stability. And I would argue that the maturation of the captive insurance industry played a role by giving risk managers more options and flexibility.

Hard markets usually spark a corollary growth spurt in captive insurance formations. As prices harden, and insurance becomes more scarce, organizations form captives to fill the gap. But even without the hardening market, we continue to see growth in captive insurance. As Brady Young, president and CEO of Strategic Risk Solutions (SRS), told Captive.Com recently, he sees captives evolving in the future to be more of an offensive tool to support overall corporate strategies to serve customers and generate incremental profits. Brady also states, “captives can and will do more to reduce organizations’ overall cost of risk and squeeze out more of the inefficiencies of the traditional commercial insurance market… and in terms of specific lines of business or growth areas, captives will help solve the mismatch between the demands of companies and industries that have new risks and service models where traditional insurers struggle to provide the needed solutions.” He would know!

Next time I get asked by a reporter whether I think a hard market is coming our way, I will give them the same answer I gave at the end of last year: hard market, schmard market (which translates to not likely).

Speaking of Brady, come join us next Tuesday, February 6, in Atlanta where Brady and I will participate in VCIA’s world-famous Road Show outlining the advantages of captive insurance. We will be joined by Sandy Bigglestone, Director of Captive Insurance at the Vermont Department of Financial Regulation, Christy Williams, President of Green Mountain Sponsored Captive Insurance Company, Christopher Smith, President and Chief Executive Officer of MCIC Vermont, Inc. (A Reciprocal Risk Retention Group), and Ian Davis, Director of Financial Services for the State of Vermont.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Thank you and Congratulations!



ICCIE-award-squareAs I wrote about in last week’s blog, VCIA hosted our annual Member’s Legislative Day in Vermont’s state capital, Montpelier, yesterday and it was a big success!

Our members, including many who came in from afar, got to hear from Vermont’s Lt. Governor, David Zuckerman, as well as Commerce Secretary Mike Schirling at our luncheon, and then later in the day from the Speaker of the House, Mitzi Johnson, the President Pro Tempore of the Senate, Tim Ashe, and finally from House Minority Leader Don Turner. Even though they 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 lunch the Vermont State Economist provided a view of the State and national economy for members. VCIA and ICCIE board member presented the second ICCIE Fellow designation to Vermont’s own Kate Boucher from Premier Insurance Management Services. Congratulations, Kate, much deserved!

VCIA testified before House Commerce and Senate Finance on the captive bill that was introduced this week and to provide an overview of VCIA and the captive industry. Joining me was Ian Davis, Director of Financial Services for the State of Vermont, VCIA’s board vice chair, and Jan Klodowski, vice president for Agri-Services Agency, LLC, a subsidiary of Dairy Farmers of America.  As usual, Ian and Jan did a great job!

And finally, under the sure hands of Dave Provost, the House Commerce committee passed out this year’s captive bill with an 11 – 0 vote.
For a copy of the captive bill, please click here

Thank you all very much, and I look forward to hearing from you!

Rich Smith
VCIA President

Viva Las Ve-rmont!

Sure, it seems easy – especially when you are the largest and most sophisticated captive domicile in the US. But the work that Ian Davis, Dave Provost, Sandy Bigglestone and the rest of the State of Vermont team put into attracting so many new captives to license in the state should not be overlooked.Captive-Licenses-2017

What I am talking about here is the recent report that 2017 proved to be another highly successful year for Vermont’s captive insurance industry.  Vermont added 24 new captive licenses, bringing its total to 1,112 with 566 active captive insurance companies. This is almost exactly the average number of new captives licensed yearly in Vermont (roughly 25) regardless of the marketplace. There are now more than 40 states with captive laws on the book and with the current uncertainty of state self-procurement taxes that put a thumb on the scales in favor of “home states”, Vermont still excels.

The new captives were made up of 11 pure captives, 5 sponsored captives, 3 Risk Retention Groups (RRGs), 3 special purpose financial insurers, 1 branch captive and 1 industrial insured captive – as usual, a healthy mix of sizes, types and industries.  Risk Retention Groups account for three of the new licenses, bringing the active total to 90.  Vermont continues to hold a dominant market share with over 60% of all RRG premium volume being written by Vermont companies.  As David Provost, Vermont’s Deputy Commissioner of Captive Insurance, always says Vermont’s focus will always be licensing quality companies, not chasing numbers.

Don’t forget that January 24 this year is VCIA’s annual Legislative Day in Montpelier, Vermont’s capital. It’s a full day of meeting and hearing from Vermont’s political leaders on the captive industry and issues facing the State broadly. Go to and register today!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Welcome Home!


Some good news for Vermont was announced right before the New Year a week ago: the University of Vermont Health Network will move its captive from Bermuda to Vermont!

The network’s Board of Directors unanimously approved the move of VMC Indemnity Co. Ltd., a captive that provides medical malpractice insurance coverage, according to a statement by the six-hospital system issued Friday.  UVM Health Network established their captive back in the late 80’s, when Vermont’s captive insurance industry was just getting off the ground, and one of the few domiciles that made sense for many healthcare captives was Bermuda.

A nonprofit corporation will be established to become the network’s captive insurer and it will seek approval from the Internal Revenue Service to operate as a tax-exempt organization.  The UVM healthcare system has more than 1,000 physicians and 2,000 nurses and other clinicians in Vermont and New York.

Needless to say, we are very pleased to have VMC Indemnity redomesticate to Vermont!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Happy Holidays and See You in 2018


I just wanted to wish all of you Happy Holidays as we head out of 2017 and into 2018. It’s been another busy years in captives, that included a horrific hurricane season, the decision of the Avrahami case on 831(b)s, the specter of continued cyber security issues with the hacking of Equifax (among others), and the soon-to-be-passed Tax Reform bill – all of which impact our industry.

That being said, captive insurance is growing and remains a robust part of the world’s risk management sector. Vermont broke through the 1000 captive license mark and looks to add around 25 new captives before year’s end. With challenges and opportunities that lie ahead such as healthcare, drones, (more) cyber risk, and AI (artificial intelligence – get used to it), captives will show how entrepreneurial and innovative our industry can be!

Thank you all for another great year and Happy New Year!

Rich Smith
VCIA President