Lights, Camera, Act(ion)!

bill signing blog

Governor Phil Scott signs Vermont’s updated captive bill on April 18, 2019. Behind him from left to right are Ben Gould (Paul Frank + Collins), Ian Davis (State of Vermont Department of Economic Development) and Mike Marcotte (Chair of the House Commerce Committee)

As I mentioned in my blog a couple of weeks ago, the Vermont legislature passed this year’s captive bill pretty quickly and all we were waiting for was the Governor’s signature to make it officially
an Act.

Yesterday, at the Governor’s ceremonial office in the State House, Governor Scott did just that! Surrounded by VCIA members the Governor signed this year’s captive bill into law strengthening Vermont’s captive regulation in a variety of areas. This year’s bill proposed several updates, including modifications to the captive examination schedule and improvements to the statute governing group captive investments. The enhancements included in this year’s bill highlight the state’s ability to work closely in partnership with Vermont’s Governor and state legislature to ensure its captive law remains the industry gold standard.

Along with State officials, those participating included VCIA legislative chair Ben Gould of Paul Frank + Collins, John James from Performa, Mat Robitaille and Connor Duffy from KeyBank, Steve Killoran and Rich Litchfield from Maple Capital,
Michelle Ambrose and Linda Elliott of Marsh, and Christina Kindstedt
from Advantage Insurance Management.

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

Rich Smith
VCIA President

 

Connection to Purpose

hospital_2250548a

Captive insurance has had a bit of a rough ride lately. Whether it’s the news about 831(b)s or the “extra-judicial” tax grabs by non-domicile states, it seems that we are in a continuous rearguard action regarding the efficacy of our industry.

That’s why, now more than ever, the captive industry needs to start telling OUR story. The true story of the many ways that the existence of captive insurance creates good in the world. Of course, we know that captive insurance provides a risk financing mechanism for organizations to save money; but lesser told is often what good is done with the money saved. These cost savings have a direct impact on saving lives in hospitals; helping prevent life-altering accidents for farmers, truckers and construction workers; allowing low-income housing authorities to provide safe living spaces for their clients; and helping college protect their students and provide more support for their educational mission.

There is a great article right now in Risk & Insurance exemplifying this connection to purpose. The article is focused on the lives saved at The University of Oklahoma Hospital System, where VCIA board member Heather McClure is interviewed about its captive insurance company, Academic Physicians Insurance Company.  Heather is the Chief Operating Officer at APIC, and she gives terrific and moving examples of how the captive has played such an important role to the university and community. You can read the article by clicking here.

You will be hearing more about the industry’s connection to purpose from VCIA and other captive organizations in the near future.  It’s imperative that our story get out there and be told. What’s your story?

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

Rich Smith
VCIA President

Captive Immersion

underwater

Every year VCIA looks for new ways to provide content and updated information to our members at our annual conference. This year we are trying something new: we have scheduled a half-day on Monday afternoon, August 5th, right before the conference gets started for what we are calling Captive Immersion.

VCIA’s Captive Immersion is designed to familiarize individuals who are new to the captive industry (or who just want to understand captive roles more fully) on the key services that are needed during captive feasibility study, formation and management. These services include legal, auditing, management, actuarial, investments, and captive regulation. Industry experts will give newcomers a complete sense of the various components and their importance in the overall captive picture. The afternoon begins with lunch and concludes with a cocktail networking reception for participants of Captive Immersion, the session speakers, VCIA board members, Platinum sponsors and invited captive owners.

Upon completion, participants will be able to better understand key stakeholdings in the captive insurance industry; obtain a higher-level understanding of the captive insurance industry; learn how and when to engage the services of a particular service provider; understand the roles and responsibilities of each service provider group.  A lifetime’s worth of knowledge all in one afternoon (with drinks at the end to boot)!  So, keep a lookout for more information, including our official May 1st conference kick-off day.

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

Rich Smith
VCIA President

Great News: VCIA’s captive bill passes… but you knew that was going to happen

imjustabill
Thanks to the expert testimony of Deputy Commissioner Dave Provost, this year’s captive bill passed the House and Senate and is on its way to the Governor for his signature. Unless there is a calamity, the Governor will sign it into law within the next week.

Here is a quick outline of what it will do:

  • Allows non-profit protected cells can issue dividends to its owners.
  • Eliminates the requirement for an attorney-in-fact bond of a reciprocal RRG in most circumstances.
  • The commissioner currently can waive the three-year exam period, but with the maturity of many of Vermont’s captives, it made sense to revisit the timeframe. This section makes default exam period 5 years, but commissioner can shorten if determined to be prudent.
  • Allows any type of entity recognized by the Secretary of State to be formed as a captive.
  • Allows groups and agencies to either comply with current statutory investment requirements OR come up with an acceptable plan (which DFR will keep confidential). Section 3463a – valuation methodology – still applies.
  • Re-writes the RRG independent director section for clarity.
  • Makes NAIC statutory accounting the standard for the new affiliated reinsurance company or ARCs.  Vermont didn’t need to meet accreditation standards, but wanted to avoid a repeat of the AXXX/XXX fights.

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

That’s NOT the Spirit

regulationThe big news at the CICA conference in Tucson (other than my travails in getting home) was the placement of Nevada-based Spirit Commercial Auto Risk Retention Group (RRG) into permanent receivership and how it might impact the alternative risk transfer market. A story broken by Christopher Diemel of the Risk Retention Reporter examined the problems of Spirit dating back to 2013, where there were clear warning signs that the company was not living up to its obligations. On February 27, 2019, the Eighth Judicial District Court of Nevada entered its permanent injunction and order appointing the Nevada commissioner of insurance as permanent receiver of Spirit Commercial Auto Risk Retention Group, Inc.

Chris’s report outlined developments at Spirit in 2018 including an auditor’s letter alleging material misstatements, the restatement of the company’s 2017 annual statement, and a loss portfolio transfer deal in excess of $100 million.  However, it was the response (or lack thereof) by Nevada regulators that is most troubling to me – and a warning to the industry as a whole.

The concern that the NAIC might again put RRGs under the microscope is real, however, the industry overall is solid. By all measures, captive insurance companies, including RRGs, have far better metrics than traditional insurance companies.  A 2018 report by rating agency Demotech revealed that RRGs remained financially stable, as cash, assets, and liabilities all increased since 2017 Q2. According to Demotech, the results suggest RRGs are adequately capitalized and are able to remain solvent if faced with adverse economic conditions or increased losses.

The Spirit case is a prime example of the differing levels of regulation by states. Chris’s report provided examples of RRGs that ran into trouble but were quickly and efficiently handled by state regulators in other domiciles. I don’t know what exactly happened in Nevada, but to me the issue isn’t rogue captives or RRGs, or less than scrupulous service providers. It is state regulators failing to do the right thing – and that’s not good for any of us.

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

It’s time we stop being ostriches…

 

head-stuck-in-sand

How much longer is our industry (and by that, I mean the general insurance industry) going to keep ducking one of the most (if not THE most) important risk issue of our time: climate change?

Regardless of what your philosophical or political beliefs may be, the evidence is clear that we are facing unprecedented changes in the earth’s climate – well at least going back a few thousand years. And still, the one industry that is supposed to be out in front on risk management has its head in the sand.

As late as last year, Business Insurance reported that “the majority of insurers, particularly in the United States, do not integrate climate change into their risk management practices despite historic flooding in many communities”. Reinsurers, on the other hand, seem to have had a better response to climate change-related financial risk, according to the study by the University of Waterloo called Insurance and Climate Change Risk Management: Rescaling to Look Beyond the Horizon.

As reported in Gloria Gonzales’s article in BI, most insurance companies assumed the risk to property from extreme weather is static and based their premiums on historical data. Insurers have not adjusted as extreme weather events have increased in severity, frequency and unpredictability, according to the study.

“As extreme events become more frequent, insurers that ignore climate change will not put away enough money to cover their claims,” Jason Thistlethwaite, a climate change economist at the University of Waterloo, said in a statement. “To recoup those losses, they’ll have to raise rates or pull coverage from high-risk areas. When this shift happens, thousands of people will lose coverage or it will be unaffordable.”

“Some insurers are better at understanding climate change than others,” Mr. Thistlethwaite said. “These organizations will survive and likely be able to sell climate services to their counterparts struggling to understand the problem. Those that don’t will fail.”

As I blogged more than a year and a half ago, the insurance industry, including captives, needs to step up and lead on this issue. No industry is better placed to clear-headedly explain the risks and provide much-needed leadership on mitigation and sustainability. It’s what we do!

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

Rich Smith
VCIA President

The Gospel of Captives and Temple

students

As I mentioned in my last blog, we were in Philadelphia last Tuesday for one of VCIA’s famous Road Shows serving up our sermon on the gospel of captives to a group of around 100 attendees. My heartfelt thanks to all the participants and our sponsors: Trion-MMA, Old Republic PMA, Kroll, and the State of Vermont.

Jeff Packard of Old Republic PMA acted as our MC, introducing the panels while providing entertaining (and educational) anecdotes of his many years in the captive industry. Our panelists were terrific as well! Kirk Watkins, Captive Practice Leader of Trion-MMA, walked through the basics of captives including types, lines and the process of setting one up. Then Ian Davis, Director of Finance, and Sandy Bigglestone, Director of Captives, provided an overview on regulation and licensing of captive insurance in the State of Vermont.

The second panel included two of Vermont’s captive insurance owners, Gary Langsdale, University Risk Officer for The Pennsylvania State University which owns Nittany Insurance Company, and Phil Leaman, COO of Resource Partners and Peace Church Risk Retention Group (A Reciprocal). Both provided excellent information from their many years of experience in operating captive insurance companies.

Gary outlined the complexity of his captive which covers 8 million sq. ft. of floor surface in 700 buildings, a 107,000-seat football stadium, 45,000 students, 16,000 faculty and staff, 1900 owned motor vehicles, two large hotel and conference centers, and, my favorite, a nuclear reactor sharing a driveway with the child care center!  Phil talked about how his captive covers Quaker, Mennonite, and Church of the Brethren facilities serving the aged and other assisted living populations.  With approximately 140 organizations and 16,843 insured units, Peace Church has gross written premiums of $55,433,689.

But most of all, we had around 30 students from Temple’s Fox School of Business studying risk management or actuarial sciences who joined us that afternoon. This extremely poised, intelligent group of young adults asked the best questions and provided all of us great hope for the future of the captive industry. My sincere thanks to Michael Zuckerman, Assistant Professor at the Fox School of Business and Management’s Dept. of Risk, Insurance and Healthcare Management, for bringing such an inspiring group of students!

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

Rich Smith
VCIA President