Category Archives: VCIA 2020

Full Circle

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Over the course of this 40th Anniversary of captive insurance in Vermont, I will share a photo or two from days gone by. The first photo is from Diane Leach’s first home office in 1987 where she ran VCIA before “upgrading” to a couple of office spaces throughout the years. Lots of clunky office equipment and Diane said the fax machine would ring all night!  Funny, how we have come full circle now that we are all working from home – and we may never go back to an office again (or at least not full time).

Even better is this photo from 1987 celebrating Diane’s departure luncheon at ARM (now Aon).  I recognize several folks in the photo – some still working in captives, others retired or passed. The guy standing to the right with the blue suit could have been me back then – just need to add parachute pants!  I will offer a box of Lake Champlain Chocolates to the person who can name the most faces in the photo!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Kickin’ it Off!

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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!

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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

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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

Friday the 13th – It’s Your Lucky Day

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All of us in the captive industry, and throughout the broader risk management industry, are very rational thinkers who rely on science to determine the course of action we take in life, right?  A recent report published on November 10, 2020 in Captive International reminded me of how human behavior, with all its biases and superstitions, is a very difficult element in any kind of modelling.

The report, titled Viruses, Contagion and Tail-risk: Modeling Cyber Risk In The Age Of Pandemics, aims to better understand what modelers looking at pandemics and cyber risk can learn from each other.  The report highlights the lack of data from both types of viruses in trying to determine useful models for risk management. However, what caught my eye was this statement: “Although pandemics originate from pathogens, it is the individual and societal reactions to them that are hardest to model…”

I have always been fascinated by behavior economics as it tries to tackle our human foibles in a way that can be interpreted by economists to better understand how our world works. Even very intelligent, seemingly rational individuals are swayed by their internal biases. Science and economics are getting much better at “adjusting” for these very human traits and captive insurance will no doubt benefit as the industry sharpens risk modelling in everything from workers comp to liability. But just in case, hold on to that lucky talisman for now.

On another note, I want to wish Kevin Heffernan of Artex bon voyage as he announced he will be retiring in March 2021. Kevin has been with Artex for many years in a number of leadership roles and for the past 14 months has led captive operations across the US as executive vice president. Kevin was the first finance chair for VCIA at the start of my tenure over ten years ago and he did an excellent job of guiding the committee as well as providing me solid  advice on a wide range of topics Thank you, Kevin, and good luck!

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?

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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

Boo!

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As if there aren’t already enough things to be frightened of, the World Economic Forum recently released an international jobs report that highlighted the top concerns for global business compared with previous years. Unemployment and spread of infectious disease were the top two risks cited by business executives globally, with fiscal crisis — last year’s top concern — falling to third place.  Not really surprising.

The Regional Risks for Doing Business 2020 survey results are based on 12,012 responses from business leaders in 127 countries. They were given a list of 30 global risks and asked to select the five global risks that they believe to be of most concern for doing business in their country within the next decade.

Cyberattacks have dropped down the list of top concerns for global businesses compared with previous years but remains the biggest risk for U.S. businesses.  While the top risks for global businesses are mostly related to economics, climate-related risks are causing greater concern this year, with natural catastrophes, extreme weather events and failure of climate change adaptation all rising up the list, the WEF said in a statement accompanying the report.

Captives will continue to be integral to their owners in optimizing recovery and building greater preparedness into their business models in order to be more resilient in the face of future disruptions. For more information of the survey, go to this link:

https://www.weforum.org/agenda/2020/10/risks-for-doing-business-survey-unemployment-coronavirus/

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

Rich Smith
VCIA President

Boom Times!

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Finally, maybe a little good news in this difficult year. As we all know, the hardening of the traditional insurance market has produced a surge in interest in the formation of captives by new entrants into our industry, as well as an expansion of types and amounts of risks in current captives.

Anecdotally, all my recent discussions with VCIA members have circled around how busy they have been with inquiries and expansion plans since the beginning of the year. Ellen Charnley, president of Marsh Captive Solutions, reported not long ago that Marsh has broken records in the number of captives formed this year. Marsh formed a record 76 new captive insurance companies between January and July 2020, an increase of over 200 percent compared to the same period in 2019 – amazing!

Here in Vermont, DFR Deputy Commissioner Dave Provost and his staff have echoed the reports. Vermont has licensed over 25 captives already this year. For comparison, twenty-five new captives for the entire year is considered a good year normally! And usually the fourth quarter is the busiest for our friends at DFR, as organizations seek to form their captive programs before the new year.

Looking ahead, it doesn’t look like there will be much abatement in captive growth. With a continued hardening market forecast into 2021, and the impacts of the pandemic continuing to unfold, organizations will continue to seek the financial stability and cost savings that captives can often bring to their owners. Let the boom roll on!

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

Rich Smith
VCIA President

And the Winner is…

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It’s award season in the captive community (aw, heck, it’s always award season…) and not unusually several recent awardees have deep connections with Vermont.

Captive publication, Captive International, named the winners of its inaugural U.S. Captive Awards this past week and many of the winners were from Vermont or had lasting connections to VCIA. I won’t list all the winners, but here is a smattering from Vermont. First and foremost, Vermont was named Domicile of the Year. Some of the Vermonters who won include Beecher Carlson’s Pete Kranz, named as Captive Management Professional of the Year; Stephanie Mapes of Paul Frank + Collins, who is incoming VCIA board chair, received the Individual Legal honor; and former VCIA board chair Tina Truax McCuin of TD Wealth received the Individual Banker of the Year – are you sensing a pattern here?

Captive Review also staged their annual U.S. Captive Awards this past week and Vermont was the winner again of Domicile of the Year for the 7th year in a row!  Pete Kranz won Captive Service Professional of the Year in these awards as well, and former VCIA board chair Heather McClure of Academic Physicians Insurance Company (Oklahoma University Medicine Hospitals and Physicians) was named Captive Risk Manager of the Year. Again, I am sensing a pattern…

Many of the great firms and people who received awards from these two esteemed captive publications have strong connections to VCIA and all have played a role in its growth. We are happy to have these professionals among us. Congratulations to all!

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

Rich Smith
VCIA President

Welcome Brittany!

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I want to say a HUGE welcome from the Vermont captive insurance community to Brittany Nevins. As many of you have heard, Brittany recently joined Vermont’s Department of Economic Development as the new Captive Insurance Economic Development Director. She will be taking over from the estimable Ian Davis, now over at Peoples United (but still in our captive community!).

Brittany will be responsible for the marketing and business development of Vermont’s captive insurance industry, working closely with the Department of Financial Regulation and VCIA to continue to strengthen the state’s reputation as the premier onshore captive insurance domicile.  We have already had several calls and zoom meetings with hew and she is going to be great!

Located in Texas for the last 2 plus years, Brittany served as a community and economic development specialist for Travis County, Texas, managing its property tax rebate program for businesses that sought to develop in the Austin region. Prior to that, she was a policy specialist for the Texas Health and Human Services Commission, where she provided support for a variety of agency regulatory programs.

On top of all that, having lived in Latin America for a little while, Brittany is also fluent in Spanish. And as VCIA and the State of Vermont continue to explore connecting the Vermont captive industry to the Latin American risk management marketplace, it will come in handy. Although, she did warn me translating our nomenclature, such as non-domiciliary reciprocal risk retention regulations, will not just flow off her tongue! And it coincides nicely with next week’s Online Captive Trade Mission with Mexico which VCIA and the State are hosting on September 30th.  By the way, this event is free for VCIA Members – details here.

So, please take a minute to say “hi” to Brittany and welcome her into our wonderful community, like you did for me ten years ago. Her email is brittany.nevins@vermont.gov.

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

Rich Smith
VCIA President