CNN_SOTU_logoJoin me on November 20th for an informative and timely update on VCIA legislative activities on behalf of our members and the industry. The session is free, for VCIA Members only, and is not to be missed!

I will be joined by David Provost, Deputy Commissioner for Captive Insurance at the Vermont Department of Financial Regulation, and Jim McIntyre, VCIA’s representative in Washington DC for an overview of new and pending regulations in the state and in Washington D.C. and the NAIC.  Between these two guys, they hold enough knowledge on captive insurance to fill an old UNIVAC 1107 mainframe computer (OK, admittedly an iPhone holds tons more data, but we old mainframes have to stick together)!

Learn about VCIA’s activities on your behalf, and the status of important current issues like:

  • What’s happening in Washington, DC
  • TRIA Reauthorization
  • Cannabis Safe Harbor Act
  • IRS Letters to 831(b) Captives
  • Update to the Liability and Risk Retention Act (LRRA)
  • Activities and updates from the NAIC, including the RRG Task Force
  • Non-domiciliary state actions: Washington State, Johnson & Johnson decision
  • Vermont’s captive 2019 bill and what’s ahead for Vermont’s 2020 captive bill
  • DFR legislation creating an insurance “sandbox” to test innovative technology or insurance models.
  • Vermont Department of Financial Regulation updates

I hope you will be able to attend this Members Only event.  If you aren’t already a VCIA Member, this would be a great time to join! Click here for more information and to register.

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

Rich Smith
VCIA President

On The Road Again…

Richie-NelsonVCIA is on the road again, coming to Boston on November 14 at the Seaport Hotel & Conference Center for our “world famous” VCIA Captive Road Show, where we preach the gospel of captive insurance in cities across the U.S. (and will even be presenting in Mexico City next year!)

The VCIA Road Show is an excellent chance to learn about captive insurance and enjoy a great reception afterwards, to connect with others in the industry.

The educational session will feature representatives from two captive programs, who will share their experiences.  Tracy Hassett, SPHR, is President and CEO of Educators Health, LLC where she played a key role in the launch of edHEALTH, a unique entity, a first of its kind consortium of colleges and universities with the mission of reducing health care costs while enhancing consumer knowledge of options, plan design, disease management and wellness programs. Gail Newman, Vice President of Risk Management for Bright Horizons Family Solutions is our second captive owner panelist. Gail’s program excels in providing best-in-class family-care solutions across North America, United Kingdom, Netherlands, and India. Gail is passionate about business process improvements and creating risk mitigation strategies that not only support healthy financials and the “right” insurance program, but also keep employees and clients of the business safe. With the inception of Bright Horizon’s captive (APEX) in 2017, the business has been able to realize better flexibility and financial health for their insurance program and innovate insurance coverage strategies that are unique to the business.

Others all-stars presenting that day will be:  Michael O’Malley, managing director for Strategic Risk Solutions; Dave Provost, Vermont’s Deputy Commissioner of Captive Insurance; and Ian Davis, Director of Financial Services for the State of Vermont.

If you are in the Boston area, I hope you will be able to join us! Click here for more information and to register.

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

Rich Smith
VCIA President

TRIP(RA) Down Memory Lane

The long-term viability of the U.S. property terrorism insurance market is back in the spotlight as Congress looks at renewing the federal reinsurance backstop, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which is set to expire in Dec. 31, 2020.

Despite a trend of decreasing risk, new threats will likely arise. A report from Marsh points to events that will likely affect terrorism risks in 2019, including the territorial defeat of First, Islamic State (IS) that the report warns will likely bring new threats both in the Middle East and in Western states, especially in the wake of the chaos in Syria. Religious extremism is expected to remain the dominant terrorism threat globally, but the threat from the “extreme right-wing groups” is also expected to rise in Western states, most likely in the form of “low-capability attacks that “generate little property damage, but pose significant risks to people.”

Why do I bring this up now? We all remember the last-minute deal for the last reauthorization, and are seeking to avoid it. Congress held a hearing on October 16th on the subject, and Joe Carter, acting president and CEO of United Educators, a risk retention group, testified on behalf of the American Property Casualty Insurance Association.  United Educators is a longstanding and active member of VCIA.

Joe testified that the “TRIA program has been successful in making much needed terrorism insurance coverage available to meet the needs of the market and protect the nation’s economy. Reinsurers’ appetite for writing terrorism insurance without the program in place may be limited. Failure to reauthorize the program could have significant economic implications and would expose taxpayers to even greater risk because pressure for federal disaster assistance to compensate for uninsured losses would increase in the aftermath of an attack.” I couldn’t agree with him more.

The good news is that the new chair of the House Financial Services Committee, Maxine Waters, supports the reauthorization. The more troubling news is that a letter was filed from the Consumer Federation of America stating that TRIA should NOT be reauthorized as there was “plenty of capacity in the market”. It is hard to fathom why the Consumer Federation of America is taking this stance, especially as there is no impact to taxpayers or consumers with TRIPRA.

Jim McIntyre, VCIA’s DC counsel, believes there is sufficient support on Capitol Hill to get it reauthorized, and VCIA will work with a coalition to move the agenda forward – so we are hopefully wringing our hands at the end of 2020 wondering if it will pass!

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

Rich Smith,
VCIA President

VCIA Newsy News

newsblogTwo quick pieces of news regarding VCIA members to bring forward.

First, congratulations to VCIA Board Member Anne Marie Towle, for being one of this year’s winners of Business Insurance magazine’s “Women To Watch” award!  Launched in 2006, the award recognizes women leaders doing outstanding work in risk management and commercial insurance. Nominated by readers based on their accomplishments, expertise, leadership, and future prospects, honorees are selected by a panel of editors.  Anne Marie is Hylant Global Captive Solutions leader, and joins Sandy Bigglestone, Director of Captive Insurance for the State of Vermont, who was awarded this prestigious honor last year.

And a warm welcome to Vermont goes out to Arsenal Insurance Management, which is opening a new office in Burlington. Arsenal, founded in 2006, is headquartered in Montgomery, Alabama, and joins the already considerable number (20!) of captive managers with Vermont offices. I had the privilege of seeing Arsenal president Norm Chandler on a panel at the National Risk Retention Association conference in Chicago a few weeks ago. He presented a session entitled RRGs in The Future of Healthcare Without Health Insurance alongside fellow VCIA members Tim Padovese, CEO of Ophthalmic Mutual Insurance Co., and Stephen Koca, Principal and Consulting Actuary at Milliman. Join me in welcoming Arsenal to VCIA and to Vermont!

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

Rich Smith,
VCIA President

Parametrics and Nat Cat

floodI participated on the SRS webinar recently about using a captive program for natural catastrophe risks (Nat Cat) and found it quite interesting. Most often, Nat Cat risk is insured with parametric insurance, a type of insurance that does not indemnify the pure loss, but rather issues a set payment upon the occurrence of an objective triggering event, such as an earthquake of a certain magnitude or a hurricane of a specific intensity.  The use of a parametric trigger has been around for some time, but there seems to be growing interest in the tool, especially with the number of natural disasters increasing exponentially every year.

Robert Nusslein, Head, Innovative Risk Solutions Americas, Swiss Re Corporate Solutions, effectively described how captives can play a role in parametric insurance.  With insurance markets looking like they are hardening, especially property in natural disaster-prone areas, a new approach needs to be contemplated. As Swiss Re explains, parametric insurance products are linked to reputable, objective third-party sources, which are used to determine an insurance payout. They are designed to provide catastrophe coverage and complement, but not replace, traditional insurance coverage. Using this structure, parametric insurance payouts are quickly determined, easily measured, and effectively eliminate loss adjustment hassles. The proceeds from a parametric insurance payout can be used at the buyer’s full discretion.

Captives can play a variety of roles in this type of scenario.  As Brady Young pointed out, captives allow corporate to transfer risk of its subsidiaries to the parent’s captive insurer. Also, subsidiaries retain risk in their comfort zone and are able to assume it with less negative impact to financial results from Nat Cat or weather events. The captive can assume an appropriate amount of risk, anywhere from 90% to as little as 10%, with a reinsurer behind the captive assuming the balance of risk. Risk can be split in primary and excess layer participations or a percent quota share participation between captive and reinsurer. Reinsurers provide underwriting, structure and pricing expertise for parametric Nat Cat covers and third-party arm’s length pricing verification for the captive and its regulator.

All of this helps captive owners capture some of the benefits of parametric insurance, such as breadth of coverage, speed of loss payments, and supplemental coverage to traditional insurance.  And with the growing risk from natural catastrophes due to climate change, it is important for captive owners to be ready!

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

Rich Smith,
VCIA President

Captives and Debtors

bankcruptcyInteresting news about OxyContin maker Purdue Pharma seeking product liability insurance and general liability coverage by creating a captive insurer.  Purdue asked for permission to set up the captive insurer in federal court on Monday as part of the firm’s filing for bankruptcy protection, as it has been challenging for them to find a commercial solution with a third-party insurer, not surprisingly.  Purdue faces more than 2,600 lawsuits alleging that it helped fuel the U.S. opioid epidemic.

As VCIA Member (and recipient of VCIA’s 2019 Industry Service Award!), Chaz Lavelle of Bingham Greenebaum Doll LLP stated recently in a September 17 article in Business Insurance,  “We’ve had situations in the past where an operating company has gone bankrupt but the captive insurer which it has previously set up was fully solvent, continued to operate and pay claims notwithstanding the bankruptcy and the disposition of the company.”

It reminded me of the Vermont captive for the bankrupt firm Enron back in the 90s. Even though the firm was mired in bankruptcy proceedings due to the fraudulent leadership at the top, under the supervision of Vermont’s Department of Financial Regulation its captive remained solvent and paid out every one of its claims under its policies in full. Having the captive kept the policy claims separate from the bankruptcy proceedings. Even debtors require various liability, casualty, property and other insurance programs in the ordinary course of their businesses.

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

Rich Smith
VCIA President

May the FASB with you

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Look, the Empire of Accounting has many draconian rules and regulations, but if you are unprepared with Force of knowledge you will be thrust into the Dark Side of your ledger.

OK, enough with the Star Wars rip-off. The Financial Accounting Standard Board (FASB) has been busy at work issuing a variety of new standards. If you have investments, especially equity investments that have been accounted for through Other Comprehensive Income (OCI), you’re about to see a big change as a result of Accounting Standards Update (ASU) 2016-01, Financial Instruments Recognition and Measurement, ASU 2018-03, Improvements to Financial Instruments and ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement.

Hopefully you can join us on September 25th at 2:00 p.m. ET for a truly instructive webinar on these changes as we walk through a case study and discuss the impact of obtaining a permitted practice to not adopt these new standards. Additionally, we will provide an update on ASU 2016-13, Financial Instruments – Credit Losses and ASU 2016-02, Leases.

Our panelists will be Sandy D. Griffith, Senior Vice President at Advantage Insurance, and Magali Welch, Partner with Johnson Lambert LLP. Ably moderated by Steve Garwood, Vice President, Treasurer and CFO of EIIA, which is the parent company of two Vermont based captives, with expert content advice from Rebecca James, Principal at Johnson Lambert LLP.

After completing this webinar, you will be able to: cite changes related to accounting for financial instruments; adopt best practice methods for properly accounting for the change in guidance; and identify some impacts (potential and known) of obtaining a permitted practice to not account for this guidance.  Register now, and may the Force of accounting knowledge be with you!

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