JOHNSON AND LAMBERT
How has the position of US domiciles developed in recent years? John Prescott: At one point it seemed that any number of domiciles could achieve some degree of success. Now it seems that not all captive domiciles will prove successful. One of the overall themes in the captive arena is that there is a greater level of sophistication—in terms both of what individual captives are trying to do with their insurance programmes and what services captive managers are providing: the bar has been raised. And the same is true of the domiciles.
You really need to have a pretty high level of expertise, not just among the people who are marketing your captive domicile, but also among those back in the office doing the regulation. What that means is that some of the larger, historically successful domiciles will continue to excel, while some of the smaller, less experienced ones will founder. I do think some of the up-and-coming domiciles can be successful—I would cite Tennessee as one of those that could be a viable future option for the South East of the US—but they will need to bring in, and on, expertise in order to excel. Some of those that achieved success in recent years, but lack that critical mass, appear to be running into some challenges today. At one point it seemed that 20 domiciles could open up and 20 domiciles could be successful; now I think that has changed quite a bit.
Magali Welch: The reputation of a domicile is still very important, with corporate governance having risen up the agenda of many companies in recent years. When the regulators in the smaller domiciles change, there isn’t always such an emphasis on captive insurance and then people tend to resort to the more stable and mature domiciles.
Prescott: Turning to issues such as Dodd-Frank, we don’t see the bill resulting in any mass movement to home state domiciles; rather we believe that existing factors will continue to influence the domicile choice. As regards the onshore-offshore dynamic, I would say that the motivations to stay on or offshore have, largely, stayed the same. There has been some movement onshore, but I wouldn’t call it a trend. That said, with Solvency II or some variation of it imminent in Bermuda, this might well encourage firms to consider US domiciles.
How has the sophistication of captive management services evolved in recent years? Prescott: I think that whatever area of captive management or service provision you are involved in, expectations are higher. You have to be able to provide a deep array of services. One of the things that I have seen recently is captive management firms that have not traditionally been involved in underwriting developing sophisticated underwriting systems which they then use to work with the captive’s actuaries to write business. That is something that we never saw in the past and captive management is certainly far more sophisticated than it was even
five years ago. On the tax side, the knowledge base has also expanded considerably with captive managers having a very good understanding of what is and what isn’t an insurance company for tax purposes. It’s really the same in our business where we are working to find ways to provide value outside the traditional audit and tax compliance arena.
We are also starting to see more inclusion of employee benefits in captive programmes for larger captives, while smaller captives are increasingly looking at medical stop loss programmes. We are at the beginning of a trend in which companies will really analyse writing such risks through their captive, and whether such an approach makes sense.
Michael Bemi: There has been an incredible increase in the sophistication of captive management over the last few years. Captive managers have developed accounting services that are more frequent and more comprehensive in their detail and I believe they have placed greater emphasis upon, and paid greater attention to, governance matters than they did in the past. Additionally, there appears to be an increased level of attention to, and knowledge of, the broader regulatory and accounting environment – by which I mean greater familiarity with multiple domiciles and both national and international regulatory and accounting standards. Finally, I think that managers are playing an increasingly significant role in the education of their captive clients regarding matters such as governance standards, international and national accounting and regulatory developments, National Association of Insurance Commissioners requirements and solvency calculations.
How do you ensure that captive service provider cooperation continues to add value? Bemi: This is a question that you constantly deal with throughout the existence of your captive. You must regularly examine those needs that you cannot fulfil yourself and that need fulfilment through an outside entity, and these change over time. Captive owners can ensure that their service providers add value by simply demanding that the providers continually demonstrate that they possess the abilities and resources to satisfy an array of owner-defined needs. These would include: advanced analytics (including enterprise risk management and dynamic financial analyses; catastrophe modelling; aggregation analysis, retention analysis and investment portfolio recommendations); high-quality regulatory interactions; high-level accounting support and numerous other services. In each instance you need to assess whether you have that need and whether you can provide the expertise yourself– and if not, who in the world of service providers can do so. You then must find a suitable provider and build a relationship, but it is essential to continually reassess if they can fulfil those needs that you yourself cannot achieve.
Prescott: In this continuing soft market, some captives have gone away, or gone on hold, as companies have realised that they can pick up some
CICA | Forty years of captive leadership 79
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132