Fred Hackett 1933 – 2018

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An early photo of Fred Hackett, in the 1980’s, second from left. Fred was instrumental in the foundation of the captive industry in Vermont.  (From left to right: VCIA Members and captive industry participants Julie Boucher, Fred, Mark Boll, Kathy Davis and Dan Labrie.) 

Former Vermont captive insurance founder and director of VCIA, Luther “Fred” Hackett, died of Alzheimer’s disease on October 8, 2018 at the Wake Robin Continuing Care Retirement Community in South Burlington, Vermont.

After graduating from the University of Vermont in 1955, he served in the Air Force before returning to Vermont to join his father in a new insurance business. He was Chairman of Hackett, Valine and MacDonald Inc., Champlain Captive Management, Inc. and Benefit Investment Advisors, Inc. He was an advisor to the Vermont Captive Insurance Association Board in the early era of the captive industry in Vermont.

In 1965 Fred was elected to the Vermont House of Representatives from South Burlington. He served on the Appropriations Committee, and as Chairman from 1969-1970 and served as republican majority leader from 1967-1968. He was Chairman of the Joint Fiscal Committee of the Vermont House and Senate in 1969. In 1972 he won the Republican Primary for Governor. He lost the Governor’s race to Thomas Salmon in the general election.

Fred was an environmentalist. He proudly assisted with the legislation in 1969 for preservation of certain land abutting the Camel’s Hump State Park, creating a state-owned Forest Reserve that formed Camel’s Hump State Park. He was instrumental in the creation of ACT 250 and heavily involved with the Clean & Clear Task Force for Lake Champlain.

Fred was a sixth generation Vermonter and spent most of his life building a business and aiding ventures he felt would make a positive difference to the future of his beloved State of Vermont. Over the many years Fred received numerous awards and recognition for all he did for our state, but I remember him as a man willing to give excellent advice to an upstart in Vermont (that would be me) with no trace of condescension, and being treated as an equal. I believe that graciousness and community spirit has been successfully imprinted on Vermont’s captive insurance community.

If VCIA had a flag, it would be lowered to half mast today. Thank you for all you did, Fred.

Rich Smith,
VCIA President

National Risk Retention Association

chicagoThe National Risk Retention Association hosted their annual conference last week in Chicago and I always enjoy going out there for it. The conference brings some of the leaders and brightest from the world of RRGs together for a few days to discuss hot topics in the industry and get “learned up”.

Executive Director Joe Deems has shaped NRRA to be a pivotal player in risk retention insurance; a place to exchange valuable and timely information regarding the RRG industry. NRRA has a long history of successful legal and regulatory representation of the interests of risk retention and purchasing group liability insurance programs, as well.

A few interesting sessions at the conference include Conducting a Cyber Liability Audit of Your RRG, obviously a hot topic for anyone in the financial services industry these days. Innovation in Risk Management and Taking a Hit – Strategies for Recovering from Bad News were also of interest. A member of DFR’s illuminati, Sandy Bigglestone, provided her outlook of the RRG industry on a panel called Raising Eyebrows: The Regulators’ Perspective on the Signs an RRG is Headed for Trouble. And yours truly participated on the panel Cultivating the Next Generation of Captive/RRG Leaders, another important issue facing captives and RRGs.

Since Vermont is home to almost half of all RRGs licensed, it was a little like old home week in the Windy City. Many of the panelists are Vermonters or have strong connections to VCIA, such as Joe Carter of United Educators, Clare Bello of VCM, Christine Brown of Vermont’s DFR, Nancy Gray of Aon, Tina Truax McCuin of TD Wealth, Anne Marie Towle of JLT Insurance Management (and VCIA Board member!), and Matt T. Gravelin of Johnson Lambert.

Thank you and I look forward to hearing from you.

Richard Smith
VCIA President

Credit Risk

Rich-monopoly-manWith the renewed tension between the US and China, well, lets’ face it, the World, on trade issues, it’s a good idea to look at a captive to help mitigate such risks. President Trump just announced $250 billion dollars in tariffs targeting Chinese products, on top of previous tariffs already announced. One could argue whether it’s a good policy or not, but the facts that there will be increased risks in international trade is a fact.

As countries ratchet up the rhetoric and retaliation, insurers are weighing how companies will deal with the pressure. Trade credit insurance protects companies from the risk that buyers will be unable to pay. If governments implement more tariffs, it could increase the cost of production and ultimately put stress on retailers and distributors to either raise prices on consumers or shrink profits. If the stress is enough to put the buyer out of business, the supplier would activate its trade credit insurance to get reimbursed for defaulted payments, for example.

As reported in Insurance Business America in June, the potential failure of an agreement on NAFTA also presents risks. If NAFTA fails or is dramatically renegotiated, companies will be forced to redraft their production models and their supply chains. That will take a lot of money, time and could significantly increase their credit risk.

Forward-thinking organizations with international exposure are now seeing the benefits of bringing their own captive insurance company into the equation as a way to control the risks. Thus, trade credit and political risk are joining the growing list of non-traditional lines that captive managers are now using to better leverage the benefits of their captive.  Structured many ways, using a mix of fronting and reinsurance, some of the benefits could be:

  • Diversification of the captive into trade credit risks, which are not historically correlated with property and casualty risks
  • Additional premium flow into the captive and resulting investment income
  • Non-cancelable trade credit insurance coverage
  • An additional set of experienced eyes on the credit risks that the customer is taking onto its balance sheet

Ultimately, trade credit insurance can help companies apply longer-term risk management strategies. However, the continuing trade war puts every part of the economy at risk, and any trade risk insurance can only help so much.

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

Rich Smith
VCIA President

Tulip-mania

tulipsAccording to recent news reports, the sharp sell-off that gripped cryptocurrency markets this past Wednesday has extended into a second day, with major digital assets across the spectrum continuing to fall during trading on Thursday.  The slump was then exacerbated by a Business Insider report that Goldman Sachs has put plans to launch a bitcoin trading desk on hold for the foreseeable future. But really one only has to look to speculative bubbles throughout history not to be surprised by the news.

Back in the early 1600s there was another investment scheme that just couldn’t lose: tulips. Tulip mania was a period in the Dutch Golden Age during which contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels and then dramatically collapsed, and is generally considered the first recorded speculative bubble.  At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled crafts worker. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.

I think cyber currencies will play an increasing role in our financial and economic system over the course of the next decade. However, a little caution may be in order before deciding to place your captive assets in such a vehicle! In November 2013 Nout Wellink, former president of the Dutch Central Bank, described Bitcoin as “worse than the tulip mania,” adding, “At least then you got a tulip, now you get nothing.”

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

Rich Smith
VCIA President

It’s Conference Time!

Just a quick post to say I hope I will see you all next week in beautiful Burlington, Vermont for our Annual Conference.  If all our previous blogs, emails and calls didn’t convince you to register yet perhaps this photo will:

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It’s always sunny in Burlington!

Thank you and I look forward to seeing you next week!

Richard Smith
VCIA President

I Will Friend You…

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Let’s not beat around the bush: VCIA’s annual captive insurance conference is right around the corner (next week!) and I hired a firm that shall remain nameless {Cambridge Analytica} to worm my way into your Facebook account and send you subliminal messages to register today.

I am doing this for your own good. Our conference is an extraordinary opportunity to collaborate with captive professionals from around the world, as well as earn credits and enhance your knowledge of how to operate your business.  Two great keynote speakers including Jack Uldrich, renowned global futurist and Joel Cohen, writer and producer of ‘The Simpsons’, will be presenting next week.

And, in line with your inability to stop my intrusion into your Facebook accounts, we have a number of future oriented sessions on matters such as blockchain, Artificial Intelligence, and drones.  And at our conference technology is being used more than ever, for a more interactive conference experience: great conference app with an activity feed, electronic polling during the sessions, Social Q & A for every session (Social Q&A is a way for the audience to share questions with the presenters and ‘vote’ for questions so that the content of the session becomes more customized). Plus, we want to get you young professionals here so we specifically developed professional development sessions to keep your career invigorated, plus a Young Professionals Forum (I hear they think Facebook is so yesterday…).

Don’t make me take over your LinkedIn account as well! Click here to register today.

Thank you and I look forward to seeing you August 7 – 9!

More Headwinds Than Tailwinds

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Swiss Re’s 2018 SONAR report was just released which annually examines the emerging risks that the re/insurance industry and society are facing today. There have been shifts since last year and some things are not too surprising, but some that came to the forefront are more so.  Many of these emerging risks will be addressed at VCIA’s Annual Conference this August 7th–9th.

Of the top five Swiss Re highlighted, emerging geopolitical risk is a growing concern. Risk managers must be ready to adapt to the possible turmoil in financial markets as power drifts to Asia, democratic influences decline and the relevance of global governance institutions erodes. Additionally, the possible erosion of legal rules could threaten the ability to run global businesses.  Combined with the loss of risk diversification and the free flow of capital key to running a global re/insurance business, awareness and flexibility in our industry is paramount. Growing national protectionism and regulatory fragmentation jeopardize the benefits of the international diversification that our industry, and economy, has been built on over the past 50 years.

In the education session at our conference called Economic Headwinds and Tailwinds Impacting Captives, participants will learn about the health of the economy, macroeconomic themes, global monetary policy, the path of central bank policy and the overall direction of interest rates. Special panelist Jeff Carr, President & Senior Economist at Economic & Policy Resources, will lead the discussion. Jeff has more than 35 years of experience in economic analysis, economic and fiscal impact assessment analysis, and economic forecasting. He has served as the consulting State Economist and Principal Tax Revenues Analyst-Forecaster for the past six Governors of Vermont including the current Governor Philip B. Scott.

Also in the Swiss Re report, was the emerging threat of an increasing number of business processes driven by algorithms. Algorithmic applications are not infallible since they base their actions on human judgement as well. Discriminatory bias may also translate into defective modelling and prediction, bringing a two-fold risk to insurance and other industries.

A panel of consultants who work in this space will discuss the growing role of machine learning and analytics in all aspects of insurance business: underwriting, claims, and importantly, displacement and relocation of the risks themselves at our session entitled The Cognitive Captive: Artificial Intelligence for Smarter Insurance.  Questions discussed include: How does this affect insurable risks? How have insurance products changed to cope with these emerging technologies? How are insurance companies using artificial intelligence and predictive analytics to improve underwriting results or create a safer workplace? What coverage gaps are being created by the dislocation of risks, or a growing ambiguity about liability for losses caused by software? And how might your captive serve as a problem solver for these market failures? It will be a mind-bendingly fun hour of discussion on topics ranging from self-driving cars to bankruptcy predictions and more.

We look forward to seeing you in Vermont in August. Thank you all very much!

Rich Smith
VCIA President