Back in the Saddle…


Thanks to all who joined us in beautiful Burlington, Vermont, a couple of weeks ago for VCIA’s annual conference. Without a doubt, it was a terrific 2 ½ days with great programs, networking and events. With over 1000 attendees from 41 states and 14 countries, our annual gathering in August has grown to be THE captive insurance forum! To quote from one of our attendees “All the important captive market players from North America and parts of Europe were in attendance.” And many thanks to our sponsors and exhibitors without whom we could not put on such an event, as well as to the hundreds of volunteers who make it happen.

Now after a little break, we are back in the saddle again looking out for the captive industry. Currently we are working with U.S. Treasury on changes to the TRIA data call for captives, fighting to pass the NRRA clarification bill, and generally looking out for the captive insurance industry. You got to be a tough hombre to keep the posse moving!

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

Rich Smith
VCIA President

What’s Up, Doc?


Janice Valgoi and I are in DC this week for the 2016 PIAA Medical Liability Conference, where we are working the floor spreading the good word about captive insurance. The conference brings together hundreds of professionals who work in insurance and alternative risk transfer, all looking to gain new insights on the global and day-to-day issues facing medical liability.

Today, no industry is changing as quickly or fundamentally as healthcare. At the same time, escalating medical professional liability costs have become a critical issue for health care providers and those seeking to improve health care value and outcomes.  Healthcare continues to be one of Vermont’s most abundant sectors. Currently 96 hospital and doctors’ groups have Vermont Captives, making it the second largest sector for captives trailing manufacturing with 100.

Successful MPL captives can measure the success of hospitals and physician groups in improving the safety of care by the degree to which malpractice asserts for those organizations declined over time. After all, everything else being equal, if safety has improved, the chance of doing harm and being sued should drop.  Further, to the extent a captive is successful at helping its members carry out risk management programs, actuarial assumptions can be modified, and premiums should go down.  Also, since previous premiums were based on old actuarial assumptions, an effective captive should generate a surplus in earnings that can be returned to its members. Save money = save lives!

If you are at the PIAA conference, swing on by to say hello!

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

Richard Smith,
VCIA President

RIMS and the Commish…


Susan Donegan, Vermont’s Commissioner of the Department of Financial Regulation,has announced that she will be stepping down in June. Susan has been a true friend of the captive industry.

I hope to see a number of you at the RIMS conference this week in San Diego. Janice and I are working the Vermont booth (#2355) with Dan Towle, Dave Provost, Sandy Bigglestone, and a number of other Vermont luminaries. Although RIMS is, as a certain Presidential candidate would say, YUUuuuuge, its remarkable how many folks come around to the Vermont booth either wanting to learn more about captives or connecting with the team on a number of issues.  If you have a Vermont domiciled captive make sure you come on over and sign the RIMS Poster in the booth!

Our own Jim McIntyre will be moderating the captive insurance panel at 4:00 on Monday at RIMS. His panel is entitled Data Security and Breach Notification Legislative Update: What You Need to Know which will examine the federal government’s work to pass data security and breach legislation for consumer protection about to go into place. Jim will examine the legal ramifications for insurance companies.  Another panel included Mike Elliott, Senior Director of Knowledge Resources at The Institutes; and former VCIA Board Chair, Steve McElhiney, President of EWI Re, Inc. for a session entitled Using a Captive as a Risk Management Tool: A Case Study. Of course they are at the same time!

Changing gears, many of you might have seen the news the other day that Vermont’s Commissioner of Financial Regulation, Susan Donegan, is stepping down at the end of June. Susan is the “uber regulator” in Vermont and has been a true friend of the captive industry throughout her tenure. She supports the industry with the Governor, at the State House, and at the NAIC. Susan told me she didn’t have any immediate plans, but just wanted to enjoy a Vermont summer without all that work stuff to worry about. The Commish will be missed and we all wish her well in whatever new adventure she pursues!

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

Rich Smith
VCIA President

Disruptor (dis·rup′tor) n. [from Latin disrumpere, disrupt-, to break apart]


A force that can 1) throw into confusion or disorder; 2) interrupt or impede the progress of; 3) break apart or alter so as to prevent normal or expected functioning.

Disruptors are in vogue these days, especially when it comes to technology (think Amazon v. bricks-and-mortar). Captives were a disruptor to the traditional insurance industry when they broke onto the scene over 50 years ago, and even today, because of the flexibility and innovative nature of captives, they still are a disruptive force. But we are also seeing disruptors emerge in the traditional insurance industry in the past few years which I think may have an effect on the captive industry.

A recent KPMG survey reported that while insurance executives overwhelmingly know that innovation will drive future competitive advantage and growth, most seem to be struggling to ignite innovation within their own organizations. According to the report, “rapid innovation has created significant challenges for insurers, with 48 percent saying that their organizations are already experiencing disruption from new, more nimble competitors”. More than three-quarters said they are “already running just to keep up with their day-to-day requirements” and slightly fewer said they “lack the internal core skills needed to drive innovation”. But change is coming.

One interesting disruptor is the use of algorithms to aggregate small insurance policies in a way that prices some of the traditional companies out of the market, especially smaller enterprises looking for easy, quick and cheap. This commoditization pushes traditional insurance companies and agents to put more focus on larger business and specialized accounts – areas that should be ripe for the captive industry. Combine this with the growing use of technology and social media, such as Google Compare, and it can look daunting. But that’s what makes captives more alluring that ever. While businesses will still have concerns about coverage gaps in these types of programs, not to mention the fact that the specific needs of individual enterprises may not be available, the lack of personal accountability with these products would make any captive manager or TPA look like a hero!

This is where captives could excel. For instance, sponsored cell captive insurance companies provide the sponsor of the captive program a great deal of flexibility by allowing for individual cells that can be customized to each participant. This type of structure is growing in popularity because of the options and customization it provides. It can also be a good way for smaller companies to access the captive insurance marketplace, because typically the startup cost is less than establishing their own captive.

So keep the disruption coming! What doesn’t kill you makes you stronger…

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

Rich Smith
VCIA President

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

Top Ten with the VCIA


photo: Late Show with David Letterman/Facebook

In honor of Dave Letterman’s retirement this week from Late Night (one of the best shows of all time), I give you the top ten reasons you should become a member of VCIA:

#10   What else are you going to do with that wad of cash

#9     Their president is not only smart and charismatic, but good looking to boot

#8     Add your voice to a strong membership base to support the captive insurance
industry – membership means clout!

#7     Great marketing opportunities to connect with owners, managers and service

#6     Network, network, network

#5     Did I mention their president…

#4     Nobody gives you better education in the captive industry – nobody!

#3     Discounts on conference registration, webinars and more

#2     VCIA is the leader in providing advocacy for the entire captive industry in Vermont,
Washington, and beyond

#1     Best value in the whole captive industry

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

Richard Smith
VCIA President

Fast Track Your Benefits


fasttrack scene


Business Insurance this week reported that Hormel Foods Corp. has received tentative authorization from the U.S. Department of Labor to fund several benefit risks through its Vermont captive insurer.

Hormel, the Duluth, Minnesota-based meat and other food products producer and marketer, wants to use the captive, Diversified Foods Insurance Co. L.L.C., to fund life and accidental death and dismemberment benefits for its employees. This comes on top of the announcement a couple of weeks ago that regulators gave final approval to an application filed by Sealed Air Corp., a North Carolina-based packing materials manufacturer, to fund life and accidental death and dismemberment benefits through its Vermont-based captive insurer.  Advantages of the approach include cutting insurance costs and diversifying a captive’s risk portfolio.

The application of Sealed Air, whose products include Bubble Wrap, was reviewed under a regulatory process known as ExPro. Under ExPro, the Labor Department must act within 45 days of a company request for an exemption from an arrangement that would be normally barred by the Employee Retirement Income Security Act. The Department suspended ExPro last fall to give regulators time to examine whether the process ensures that captive benefit funding arrangements adequately protect plan participants, according to consultants interviewed by Business Insurance.  The U.S. Labor Department’s recent actions affirms that the door again is open to employers to seek fast regulatory review of their captive benefit funding proposals.

Using your captive for employee benefits has been a tantalizing opportunity for businesses for many years now. The expectation was that many enterprises would jump on the chance and take advantage of the option. However, only about two dozen employers, including well-known companies with Vermont captives such as Alcoa, Microsoft and Archer-Daniels Midland, have received Labor Department approval to fund benefit risks through their captives over the last 15 years.  Clearly it is a complex decision to make. With these two recent approvals, perhaps we will see a steadier beat toward this innovation.

Come hear the Director of Risk Management for Sealed Air Corp., Howard Edelstein, discuss employee benefits through their captive, Saddle Brook Insurance Company, on a panel at VCIA’s 30th Annual Conference, this August 11th through 13th, in Burlington, Vermont.

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

Richard Smith
VCIA President

Team Vermont in Acronym City

Acronym city

The spring meeting of the NAIC just concluded in Phoenix this week, and as usual our stalwart group of captive insurance sentinels were on hand to carefully monitor the activities that might impact captives.  Representing Team Vermont was Commissioner Susan Donegan, Deputy Commissioner Dave Provost, Director of Captives Sandy Bigglestone, and of course, VCIA’s own Jim McIntyre.

The Principle-Based Reserving Implementation (EX) Task Force Executive (EX) Committee considered the adoption of PBR Review (EX) Working Group Report and received an update on PBR progress from the Life Actuarial (A) Task Force, as well as other written updates on the XXX/AXXX Reinsurance Framework Charges.

The Risk Retention Group (E) Task Force discussed a number of items, including revisions and the applicability of? RRGs to?of annual disclosures and reporting regulations. They instructed NAIC staff to draft a number of comment letters to the Financial Regulation Standards and Accreditation (F) Committee on the following issues:

  • stating its opinion that the Corporate Governance Annual Disclosure Model Act (#305) and the Corporate Governance Annual Disclosure Model Regulation (#306) should not be required for risk retention groups (RRGs) for accreditation purposes and explaining their reasons, including the Model Risk Retention Act’s (#705) corporate governance provisions;
  • stating its opinion that the 2014 revisions to the Annual Financial Reporting Model Regulation (#205) should not be required for RRGs for accreditation purposes and explaining the reasons therefore;
  • stating its opinion that the 2014 revisions to the Insurance Holding Company System Regulatory Act (#440) would likely never apply to an RRG, as it would not fit the definition of an “internationally active insurance group.”

The RRG Task Force also discussed the reference to “captive” RRGs in the Review Team Guideline within the financial analysis procedure that is specific to RRGs, and decided: 1) it will be discussed further on a future conference call; and 2) that the Model Risk Retention Act (#705) should apply to both RRGs organized under a state’s captive statutes, as well as those organized under a state’s P/C statutes.

The Financial Regulation Standards and Accreditation (F) Committee, whose mission is to establish and maintain standards to promote sound insurance company financial solvency regulation through the NAIC’s accreditation program, took time to discuss the proposed Preamble that would include, in the scope of the Accreditation Program, captive insurers and special purpose vehicles that assume business written in accordance with Regulation XXX, Regulation AXXX, variable annuities and long-term care insurance. The Committee discussed comments received and instructed NAIC staff to revise the Preamble to clarify that these are the only type of captives (other than risk retention groups) to be included in the scope of the Accreditation Program. The Committee is considering holding an interim meeting prior to the Summer National Meeting to discuss this issue further.

Jim McIntyre’s full report  on  these committee and other issues that impact captives will be available to our members at in the coming days.

Richard Smith,
VCIA President