Captive Insurance Roundtable
Hosted by:
Our panel discussed a wide range of topics concerning the captive sector, from middle market and international opportunities to regulatory issues.
How challenging has the continuing soft commercial cycle been for captive insurance?
Alan Day: As a bank we are at the end of the production line. We’re not involved in the design stage, the consultation, and certainly not the manufacturing stage but we’re an important part of the end of the process. We’ve seen consistent flow of new formations or changes but it’s difficult to judge what decision-making has occurred or what pressures the captive owners and advisers have considered before they get to us, but it is a testing time for captives for sure.
Mark Allitt: It’s interesting that we’ve actually seen a steady flow of new formations. The traditional view is that in a soft market the commercial market’s a viable alternative, or at least it’s not really a driver to set a captive up in the same way that a hard market is. But there has not actually been any dip in formations, despite the soft cycle.
Jill Husbands: The economic downturn caused a drop in the number of incorporations, but a lot of people had plans before that to put captives in place, and now the economy is picking up, those people are dusting off their feasibility studies and moving forward. The soft market really hasn’t impacted our captives that much and part of that is because the soft market is within property cat and the very high layers of casualty, and that isn’t traditionally what we would either advocate or actually see going through our captives.
It’s much more the primary layers where they would self-insure in any case. Twenty years ago we would have all said the soft market is affecting our business, but we haven’t really seen that.
Shelby Weldon: The statistics support that opinion. Even in this soft market we continue to see companies forming captives. Captives are a longer term risk management tool, so they are not impacted as much by movements in rates. In fact, we did not see rates affect captive formations in 2013—they doubled year-on-year. And as we move through 2014, captive formations are on par with last year. So I don’t see rates being a significant decision-maker.
David Doyle: We had 24 new captive formations in 2013, and we’ve formed several already this year so it’s nice to see that trend continue. Obviously 2013 was up on prior years so hopefully that trend will be sustained through 2014 and make it a good year.
Allitt: Those statistics don’t include the incorporated cell companies (ICCs), so it could actually be greater than that. The soft market is a
good time for somebody to consider setting up a captive because you can pre-empt the hard market, and get things in place before it becomes a dire need.
In terms of unlocking or encouraging new formations, what do you think the market generally, and Bermuda specifically, can do to bring on new captives?
Husbands: We just have to continue getting the Bermuda word out there. When we were in Calgary for the Canadian Captive Conference where there was positive feedback about Bermuda, and Calgary is booming because of all the oil and gas that’s there. We need to ensure that we’re aggressive and get out there, making sure we identify new markets and don’t rest on our laurels.
Doyle: Coupled with that, the delivery of the performance we promise in our presentations is key. We have a sophisticated regulatory review process in place, but the speed at which you can get a decision out of the BMA has always been extremely important to the clients we’ve worked with.
We have had business come to Bermuda that perhaps would have been formed in their home jurisdictions but because of the time, expense, and uncertainty of the regulatory process they came to us in Bermuda. As long as we can continue to deliver, the business is there.
Weldon: From the BMA’s perspective, we need to continue to have practical and pragmatic supervision. That is a key driver in our success. We must continue to be flexible and attempt to find solutions to challenges.
We also continue to engage with our international regulatory colleagues and have already begun articulating our view overseas
of what
appropriate captive supervision looks like. We already have a seat at the table with fellow regulators and monetary authorities and have established ourselves as global thought-leaders in the captive space.
Allitt: Testament to that is how often we have developed solutions over the years. When there’s a problem, Bermuda’s been the first jurisdiction to offer the solution, and many jurisdictions have followed and copied us, but it really carries weight that Bermuda developed the solution.
Doyle: Being at the table with these regulators is important, and the conditional qualified jurisdiction status that the NAIC granted Bermuda was huge.
41 Bermuda Finance | 2014
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