Coming at us in all directions!

arrows“Global Regulatory Change for the Re/Insurance Industry”. That was a title from a story in the Intelligent Insurer back in September and, especially for the captive insurance industry, it feels like the squeeze of one’s head in a vice.

The industry been in the crosshairs from a number of threats that I anticipate will continue to develop over the next few years:  (1) excessive regulation resulting from insufficient knowledge; (2) the weakening of sound regulatory structures based on a desire to attract business; and (3) efforts to impose new or increased taxes.  The change is that these threats usually emanated from Congress or the NAIC, but now we see them coming from other sources from individual states to the murky scene of international quasi-regulation. The International Association of Insurance Supervisors (IAIS) – yes another group that needs to show its regulatory muster – continues to work on a risk-based global Insurance Capital Standard (ICS) and it is creating Basic Capital Requirements (BCR) and Higher Loss Absorbency (HLA) requirements. VCIA recently submitted comments on a captive insurance regulatory white paper from the IAIS that exposed its overreach on regulation as well as inconsistencies in the regulatory framework suggested for captives. The NAIC has raised regulatory, legal, and accounting concerns associated with the ICS and does not want the standard to favor one regulatory approach over another. The NAIC also has its Own Risk and Solvency Assessment (ORSA) requirements and the U.S. federal government continues to increase its involvement in financial services regulation. Solvency II is another concern for insurers, as it takes effect at the start of 2016. Had enough jargon and acronyms yet?

The report from Guy Carpenter indicates that these evolving quantitative and qualitative reporting requirements may help regulators more effectively track and manage risk and reduce harm to policyholders; but it also could lead to overregulation and reduced competition in the form of higher premiums and fewer product options.  The good news is that captive crusaders, like Vermont’s Dave Provost, have been very effective in stemming the flow of these types of quasi-regulations. Still, I can feel the vice tightening ever so slowly…

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

Rich Smith
VCIA President

So much for the impending “hardening market”

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According to the recently released 2015 RIMS Benchmark Survey by the Risk & Insurance Management Society Inc.,  businesses paid slightly less in 2014 to cover their total cost of risk than the past three years. Probably not news to most of you out there, but for me it kind of puts the nail in the coffin on the annual prognosis that the hardening of the insurance market is just around the corner.

There were a number of reasons cited in the report including the increasing role of alternative capital in reinsurance deals and the rising importance of predictive models among insurers, not only in the area of property, but also for cyber and casualty. “The 2014 survey results reflect the overall stability of the U.S. property/casualty market,” one of the authors of the report was quoted.

Historically the captive insurance market has seen major growth spurts during cyclical hardening in traditional insurance markets. Costs and availability often would drive institutions to examine the self-insurance world as redress.  However, what we are seeing in the captive insurance realm after years of continued soft insurance markets is organizations considering more strategic and long-term trends.   A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers.

All the more reason to join us in a little over a week for VCIA’s 30th annual captive insurance conference to hear more ideas about strengthening your captive program.  VCIA’s conference is the perfect choice for any level of captive industry professional — from newcomer to experienced professional – where you will hear from 70 expert panelists, many are captive owners sharing their stories, and have great opportunities to mingle with key players in the industry.

Commenting on what the industry expects in the second half of 2015, the report said commercial property/casualty insurers are starting to see a softening market.  No kidding!

Thank you all very much, and I look forward to seeing you in Burlington very soon!

Rich Smith
VCIA President

Munich Re, Swiss Re, Vermont Re???

 

NewOldmill

Lake Champlain, Burlington, Vermont

Jeff Johnson, from the captive law firm of Primmer Piper Eggleston & Cramer PC here in Burlington, sent me a fun fact a little a while ago:  Vermont captives’ gross written premium (GWP) as a whole exceeds the gross written premium of Hannover Re, the world’s third largest reinsurance company.

According to Best’s latest list of ‘Top 50 Reinsurers by Gross Written Premium’ from July 2014 (based on 2012 data), Munich Re ranks first with $37.25 billion in GWP, then Swiss Re with $31.72 billion. Vermont captives would rank third with $26.7 billion GWP based on 2012 data! Forget Warren Buffet’s Berkshire Hathaway at just over $15 billion.

Now, I know captives are not reinsurance companies, but in a way it is not as much an apples to oranges comparison as you may think.  Vermont as an entity is highly regarded as a place to offset ones’ risk with competent managers and regulators. The confidence and value the business and non-profit world see in Vermont is similar to how they see reinsurers like Munich Re and Swiss Re – and we share mountains to boot!  Swiss Re hears footsteps….

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

Richard Smith
VCIA President