The Lone Parent State - Captive insuranceCaptive Insurance Times Vermont seeking tweaks to captive...
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Issue 167 20 Feb 2019 The Texas captive market is still in its infancy but already has a defined character The Lone Parent State World Captive Forum The industry tees off for 2019 at WCF Emerging Talent Kelvin Wu from International SOS
Transcript of The Lone Parent State - Captive insuranceCaptive Insurance Times Vermont seeking tweaks to captive...
Issue 167 20 Feb 2019
The Texas captive market is still in its infancy but already has a defined character
The Lone Parent State
World Captive ForumThe industry tees off for 2019 at WCF
Emerging TalentKelvin Wu from International SOS
The Captive Insurance Companies Association (CICA) has released new guidance reviewing the structure and use of risk pools.
The guidance document, titled ‘Commercial Insurance and Captive Insurance Industry: Commonly Accepted Practices’ aims to address some of the common misconceptions and provide guidance on commonly accepted insurance practices.
CICA president Dan Towle commented: “CICA has always been a leader in championing the use of best practices for operating captive insurance companies, and we’re pleased to expand our best practice resources with this new guidance document.”
Towle added: “Risk pools are an important element in both commercial and captive insurance, but unfortunately their use is often misunderstood.”
“As a result, recent high-profile cases such as Avrahami v Commissioner and Reserve Mechanical v Commissioner paint activities like risk pooling with a negative brush that spills into the commercial and captive insurance industries.”
“We feel it’s important for a domicile-neutral organisation like CICA to help explain the commonly accepted practices for creating and operating a risk pool.”
He praised CICA’s Small Captives Task Force members and other CICA members for their work on the guidance document: “CICA has a wealth of knowledge among our members, many of whom are leading captive owners and organisations that provide a wide array of captive management, legal and actuarial services.”
CICA releases risk pool guidance
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flawless StructureSeamless Opportunities
Malta is host to a myriad of captive re/insurance companies, protected cell companies and cells that have come to enjoy the domicile’s stable regulatory environment and
EU membership benefits. Malta offers re/insurers and cells:
European Union Membership - Malta’s status as an EU member allows companies and cells the ability to passport their services throughout the European Union and EEA states.
Maltese insurance law and regulation implements all relevant EU directives.
Redomiciliation Legislation - Companies established in other countries can seamlessly transfer to Malta without any break in their corporate existence.
Protected Cell Legislation - Protected Cell Companies can be incorporated in Malta, enabling cell promoters to write insurance through a cell. The law ensures proper protection and insulation of cell assets and liabilities from those of other protected cells and the core of the protected cell company.
A Stable Regulatory Framework - The Malta Financial Services Authority (MFSA) is reputed to be “firm but flexible” - encouraging discussion with promoters at all stages of
an application process and also on an ongoing basis.
Extensive Double Taxation Treaty Network - Malta has around 70 tax treaties with various EU and non EU countries.
Malta
more information on:
www.financemalta.org
FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - [email protected] | tel. +356 2122 4525 | fax. +356 2144 9212
E f f e c t i v e | S e c u r e | S k i l l e d
FinanceMalta FinanceMaltaFinanceMaltaYTFinanceMalta@
FinanceMalta is the public-private initiative set up to promote Malta as an International Financial Centre.
News Round-UpVermont is seeking to tweak and update its captive insurance structure
page 06
Conference ReportTurnberry Isle played host to World Captive Forum as the industry teed off for 2019
page 10
Domicile ProfileTexas is still in its infancy as a captive domicile, but has a defined character page 16
Emerging TalentKelvin Wu of International SOS features in this issue’s Emerging Talent page 14
Industry AppointmentsComings and goings at Marsh, the South Carolina Department of Insurance and more
page 22
Latest EventsPick up your copy of Captive InsuranceTimes at these industry events
page 20
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Contents
flawless StructureSeamless Opportunities
Malta is host to a myriad of captive re/insurance companies, protected cell companies and cells that have come to enjoy the domicile’s stable regulatory environment and
EU membership benefits. Malta offers re/insurers and cells:
European Union Membership - Malta’s status as an EU member allows companies and cells the ability to passport their services throughout the European Union and EEA states.
Maltese insurance law and regulation implements all relevant EU directives.
Redomiciliation Legislation - Companies established in other countries can seamlessly transfer to Malta without any break in their corporate existence.
Protected Cell Legislation - Protected Cell Companies can be incorporated in Malta, enabling cell promoters to write insurance through a cell. The law ensures proper protection and insulation of cell assets and liabilities from those of other protected cells and the core of the protected cell company.
A Stable Regulatory Framework - The Malta Financial Services Authority (MFSA) is reputed to be “firm but flexible” - encouraging discussion with promoters at all stages of
an application process and also on an ongoing basis.
Extensive Double Taxation Treaty Network - Malta has around 70 tax treaties with various EU and non EU countries.
Malta
more information on:
www.financemalta.org
FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - [email protected] | tel. +356 2122 4525 | fax. +356 2144 9212
E f f e c t i v e | S e c u r e | S k i l l e d
FinanceMalta FinanceMaltaFinanceMaltaYTFinanceMalta@
FinanceMalta is the public-private initiative set up to promote Malta as an International Financial Centre.
www.captiveinsurancetimes.com
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Arkansas ‘expecting continued growth’ after adding two new captives in 2018Arkansas is expecting “continued growth” in 2019 after licensing two new captive insurance companies last year, according to Arkansas insurance commissioner Allen Kerr.
Statistics from the Arkansas Insurance Department (AID) revealed that the domicile licensed two new captive insurance companies in 2018, an increase on the one captive licensed in 2017.
As with the two previous years, no captives surrendered their licences in 2018, meaning the growth takes the total number of captives licensed in Arkansas to six, including three pure captives, two special purpose captives, and one US branch captive.
Kerr said he was delighted by the increased captive growth in 2018.
He commented: “AID has made significant legislative changes and resource commitments to welcome new captive applicants.”
“As a result, there has been an upward trend in industry interest in Arkansas’ captive programme, and we stand ready to provide competent support and assistance to anyone seeking to form a captive insurer.”
Kerr added: “Given the rise in industry activity, we expect continued growth in domestic captive insurers during 2019.”
“AID is also proposing new 2019 legislation to further enhance the state’s existing captive laws to expand options and framework for industry participants seeking to do business in Arkansas.”
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Vermont seeking tweaks to captive insurance statute
Vermont is seeking to tweak and update parts of its captive insurance statute in the state’s 2019 legislative session.
A consensus bill, composed by the state’s Department of Financial Regulation (DFR) and the Vermont Captive Insurance Association (VCIA), was introduced to the House of Representatives on 7 February.
The bill proposes a number of small changes to the statute, including requiring captives to be examined every five years (or more frequently if necessary), rather than every three years, which can currently be extended to five if the captive is audited.
Rich Smith, VCIA president, explained that while this change has no practical effect it reflects the state’s actual practice, which is typically to “examine all single-parent captives every five years, and prioritise group examinations every three to five years based on our assessment of their financial condition”.
Smith said: “I believe the captive industry will welcome the change because they will no longer need to get a waiver to push an exam to five years.”
Additionally, the bill will provide captives with flexibility in investments by allowing companies to follow the current investment rules or develop a plan for DFR approval.
According to Smith, this change is a move away from the current investment statutes, which are strict and prescriptive for some captives, and will allow Vermont to keep pace with the changes in the investment environment.
He added that the suggested change “better reflects the options captives could utilise that better suit their risk and investment needs”.
Other tweaks proposed in the bill include amending the statute to clearly identify
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business form if not appropriate for an insurance company, or for a particular circumstance.
Smith said the bill would provide “updates and tweaks to Vermont’s captive law that incorporate a number of the issues VCIA’s legislative committee has discussed the past few months, as well as policy suggestions from DFR”.
The 2019 Vermont legislative session began on 9 January and is due to close on 10 May.
IRS LB&I: micro captives an area of ‘significant compliance risk’
The Internal Revenue Service’s (IRS) large business and international division (LB&I) has named micro captives an “area of significant compliance risk” that it is working on in 2019.
nonprofit incorporated protected cells as eligible for dividends or distributions with commissioner approval and allowing the commissioner to exempt the attorney-in-fact from the bonding requirements under specific circumstances.
The bill also suggests clarification of the definition of an independent director; a requirement for the National Association of Insurance Commissioners statutory accounting for affiliated reinsurance companies, the new captive structure introduced in the state last year; and specific inclusion of sole proprietorships among eligible businesses to be cell participants.
Additionally, it would allow captives to use any organisational form permitted by Vermont law, meaning the captive law will automatically stay current, and DFR still has plenty of opportunities to decline an application or reject a
The IRS LB&I, which focuses on corporations and partnerships with assets greater than $10 million, outlined its strategic goals for 2019.
The division’s strategic goals include improved compliance activities, implementation of major programme priorities, workforce hiring and training, improved LB&I operations, and internal and external communication.
One of the LB&I division’s key programmes focuses on abusive tax shelters and transactions, a label that the IRS has repeatedly attributed micro captives with.
In the IRS’s 2019 Focus Guide, Douglas O’Donnell, LB&I commissioner, and Nikole Flax, LB&I deputy commissioner, commented: “We are working throughout LB&I, and closely with the small business/self-employed division, on several areas
News Round-Up
Nevis welcomes five new captives in 2018Nevis licensed five new captive insurance companies last year, a drop on the 14 captives licensed in 2017, according to figures from the Nevis Financial Services.
Due to difficult global captive market conditions, many captive domiciles have reported reduced year-on-year growth for 2018.
The Nevis Financial Services statistics revealed that Nevis saw 13 captives dissolved, a reduction on the 63 captives that dissolved the previous year.
The domicile’s negative net growth last year means that as of 31 December 2018, there were 214 active captives in Nevis–all of which are single-parent captives.
8 Captive Insurance Times
works together. Every system will need to interface with all the others.”
She explained: “Ultimately we need to digitise the entire process from end to end, but by saving costs through early wins, we will yield the cash to fund the rest of our digital journey.”
Cameron added that as cooperation is typical of the London market ecosystem, she has “no doubt that we will achieve true digitisation success”.
She added that this could only be achieved “through multiple efforts, some market-wide, some individual, and some through joint ventures”.
Cameron remarked “When our end-to-end process is fully digitised, we will be able to deliver products to our customers that are even more responsive and cost-effective.”
She concluded: “That is the objective of London’s digital journey.”
BMA joins Global Financial Innovation Network
The Bermuda Monetary Authority (BMA) has joined the Global Financial Innovation Network (GFIN).
GFIN is a group of 29 international organisations committed to supporting financial innovation in the interests of consumers and provides a forum for joint regtech work and collaborative knowledge sharing.
Additionally, it is designed to provide an efficient way for innovative firms to interact with regulators, including a cross-border pilot for firms wishing to test innovative products, services or business models across more than one jurisdiction.
BMA’s decision to join GFIN follows the launch of its regulatory sandbox and innovation hub in 2018. CIT
marketplace in London to deliver more responsive and cost-effective products to customers.
Speaking at the Insurance Network’s TINtech conference, Cameron, who was appointed to the role of CEO in January 2019, suggested the digital marketplace would free market experts to concentrate on adding real value for customers by seamlessly linking processing tasks from end to end, from proposal to claims.
She stated: “Our goal must be to build completely connected individual organisations that link seamlessly into a digital marketplace where everything
of significant compliance risk, including syndicated conservation easements and micro captive insurance.”
“These issues involve thousands of taxpayers and advisors, and require ongoing support as we look for the most effective means to bring taxpayers into compliance and seek to inform others to avoid non-compliant activity.”
LMA CEO calls for London digital re/insurance marketplace
Lloyd’s Market Association (LMA) CEO Sheila Cameron has called for the creation of a digital re/insurance
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Simply put, we provide competent service and build solid relationships. With more than 50 years of combined experience in the insurance accounting field, our professionals understand the impact on the insured company and how to properly establish and monitor performance.
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CIT 162.indd 19 19/11/2018 17:56
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Teeing off in 2019 Turnberry Isle played host to the first major captive conference of the year, welcoming 330 delegates to Florida to explore what may be in store for captives over the course of 2019
The IRS has registered two recent victories over the industry in the Avrahami and Reserve Mechanical cases and there were some objections raised by speakers at WCF to the IRS’s mindset on captives.
Sheryl Flum, managing director at KPMG, said the mindset most often employed by the IRS, that captives are bad and need to prove their value, needs to change.
Flum, who spent more than 10 years at the IRS, predicted we may see a change in the way the IRS examines captives.
She explained: “I believe that ultimately we’re going to see a more nuanced approach to the IRS’s examination of captives.”
“Right now they’re sending out information document requests, which are uniform, not specific to the facts of any individual captive. They already have the assumption that a captive is bad and it needs to prove why it is good. It is that mindset within the IRS that needs to be changed.”
Turnberry Isle, Florida, played host to 330 delegates for the 2019 World Captive Forum (WCF), the first major captive conference of the year.
The venue is a namesake of the legendary Scottish golf course that has played host to four Open Championships and was a fitting venue for the captive industry to tee off for 2019.
In its 28th year, the event’s focus was on the opportunities and challenges facing the industry as it attempts to navigate the fairways, bunkers, greens, and hazards of the year ahead.
Talk of the duel, in the sun
The Turnberry course is notorious for the ‘duel in the sun’ between Tom Watson and Jack Nicklaus at the 1977 Open Championship, and speakers at this year’s conference focused on the captive industry’s own duel between micro captives and the Internal Revenue Service (IRS).
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Conference Report
He added: “I can never emphasise this enough, blockchain is only as secure as underlying cybersecurity practices. Having set practices and secure guidelines should mean good security.”
Another emerging technology that represents an opportunity for captives is cyber. According to Michelle Chia, regional underwriting manager at Zurich, the substantial evolution in cyber policies is caused by the “very, very quick” evolution of the threat landscape.
Chia commented: “The reason for that is the threat landscape has evolved very, very quickly because malicious actors want to stay ahead of the game and somehow make some sort of financial gain. Because they’re ahead of the game, everyone else, the ‘good actors’, have to try and get ahead of those ‘bad actors’.”
Chia added: “This market evolves so quickly. Technology evolves so quickly, so, it is important to stay plugged in with direct carriers in the cyber industry to ensure you have the right coverages and protection in place.”
Latin America
The conference’s location means it is popular with experts from the Latin American captive market, a region which Tim Faries, managing partner at Appleby, suggested is the new frontier for captives.
He said the region represented a “a significant opportunity, which has been a long time developing”.
Faries added: “The gap in the Latin American market can also be viewed as an opportunity. There are hundreds of companies in the region whose risk financing and management could be improved through a captive. We view this as a significant opportunity for the growth of captives. We think Latin America is the new frontier for the captive concept.”
Another of the panellists, Javier Mirabal, enterprise risk management consultant at Javier Mirabal Risk Management, highlighted that there were 233 privately owned companies in the region with revenues above $1.25 billion in 2017, characteristics he suggested made them candidates to own a captive, but just approximately 115 Latin American captives.
According to Mirabal, the main cause of this gap is company governance issues.
He explained: “The main issue is not financial problems, the numbers are there. The main barrier is company governance issues, such as how to connect captives to the domestic legal framework or how to explain to the stakeholders that you are including a financial vehicle outside your country, just for optimising
Another speaker, Charles Lavelle, senior partner at Bingham Greenebaum Doll, said he believed an equilibrium would be reached concerning micro captives in three to five years.
He added: “If the IRS wins all the cases it will be a worse scenario than now and if they lose some it may be better.”
Lavelle also questioned the validity of the IRS’s current stance on the section 831(b) tax election.
He commented: “Through tax elections, Congress allows the taxpayer to choose how they want to be taxed. The only rational basis they will make the decision between elections on is by which election offers them a better tax result. How can it be bad to choose the economically better option offered by Congress?”
Emerging handicaps for captives
While ensuring the hazards and bunkers of the IRS are avoided is vital to the captive industry, it is important to acknowledge the emerging technologies that can help captives stay on the fairway and achieve greater success.
Blockchain is one of those technologies and Doug Alexander, digital enterprise architect, AXA XL, emphasised at WCF that its value is in the opportunity created through collaboration with peers, not the technology itself.
He said: “The value of blockchain technology is not the technology, it is the opportunity you create through collaboration with all of your peers. So, the more people that can collaborate, the value of the network grows exponentially and that creates efficiency for everyone.”
“Like any other technology it is going to continue to evolve but building those business transactions and relationships, and that collaboration, that is really the key. The technology just becomes part of the backdrop.”
Susan Joseph, B3i North America representative and speaker on the panel, agreed with Alexander on the importance on the collaboration offered by blockchain.
She explained: “If you agree on what you see you can collaborate without any friction.”
“The technology powers it, but in the end, it is a business process and application for an industry that can reinvent itself and create new business streams moving forward.”
Rocco Mancini, vice president of Marsh, discussed the issue of security relating to blockchain and highlighted the sensationalist media coverage of blockchain losses, especially related to bitcoin, explaining that “the majority of blockchain losses are caused by poor cybersecurity practices”.
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Bigglestone highlighted the importance for regulators to take responsibility when licensing captives and the need for the business of captive insurance to be “aligned with insurance”.
Bigglestone explained: “It should be a tool for risk management and risk financing, done in a private setting under a captive insurance company.”
“As captive insurance regulators we need to take responsibility for what we have created. We need to take accountability for what we have created and we cannot license a captive insurance company for any purpose other than insurance.”
There was some heated discussion over the role of the National Association of Insurance Commissioners (NAIC) in the session, but Bigglestone said the industry had been “very fortunate” to have the NAIC as a ruling body.
She added: “It was originally created for commercial insurance companies operating in the US and those standards can be a basis for regulating captives.”
“We do not need to follow every step of the laws.”
“It can be a basis for our regulation and setting standards for captive insurance. It has served us well for other types of entities, such a risk retention groups.”
Kinion noted that there was difficulty in finding experienced talent to regulate captives.
He said: “It has been a perennial challenge to find experienced regulators. Some regulators do multiple jobs including regulating captive insurance companies.”
In the session, Wheatley added that if the captive industry is to evolve it is important that the industry has “new ideas and talent at all levels”.
He added: “Innovation can come from the industry but it can also come from regulation.”
Staying on the fairway
On the back of a year in which the captive industry faced some tough challenges, such as adverse market conditions and legal issues, there was a very optimistic atmosphere as the industry drove off the first tee of the captive insurance conference calendar.
The focus at this year’s WCF was not the problems themselves, but the solutions the industry could offer, both to the challenges it faces and as an alternative to commercial insurance. CIT
your risk financing process. There is a lack of knowledge of how the captive works and how to use it. There may be people with that knowledge but they often don’t have the operational level in the company to enact change.”
The British, open?
As with almost every captive conference, Brexit made the cut as a topic for discussion. Dominic Wheatley, chief executive of Guernsey Finance, suggested that Brexit represents a “significant opportunity” for domiciles holding good relationships with the UK.
Wheatley predicted that Brexit will happen, despite current uncertainty, but suggested that the impact on the majority of global captive domiciles would be minor.
He said: “I don’t think Brexit will be a particularly significant issue for the market. I don’t think it will make the EU more hostile. The EU will continue to be a difficult trading partner for insurance generally.”
However, he noted that there could be a significant opportunity for jurisdictions that had close relationships with the UK.
He expanded: “What will change and could be quite interesting is that the UK will no longer be on the other side of the EU border. The UK has given Gibraltar certain assurances that it will keep its direct access to UK insurance.”
“There is no obvious reason why Gibraltar should be uniquely given an advantage in the marketplace and therefore it will be open for other jurisdictions to seek the same sort of directness as Gibraltar has to be able to write insurance directly into the UK.”
“There are significant opportunities there for jurisdictions with good relationships with the UK.”
In regulation
Golfers have been long haunted by the idiom ‘drive for show, putt for dough’, which emphasises the importance of finishing a hole well.
The WCF organisers appear to have employed that mantra for the conference, as the penultimate session, ‘2019 regulator concerns’, was perhaps the highlight.
Steve Kinion, director of the Delaware Bureau of captive and financial insurance products, Sandy Bigglestone, director of captive insurance at the Vermont Department of Financial Regulation and Wheatley (who is in fact not a regulator) addressed industry issues in an honest and engaging manner, in addition to involving the audience, who at times could not hold in their passion for the subject matter.
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Professional profile
I double-majored in economics and finance at the Singapore Management University. Initially I started my career as a risk management consultant in the consulting practice of a global insurance brokerage with JLT. I then joined International SOS as the group risk manager, where I manage the global insurance portfolio, which encompasses the company’s global operations in 94 countries. Concurrently, I am also a founding board member of PARIMA.
Personal profile
I come from the city-state of Singapore, one the leading captive domiciles in Asia Pacific. Sports is a passion of mine and when I’m not watching my favourite football team Liverpool, my weekends are usually spent competing in the local leagues in either field hockey, floorball or football. I also love to read and recently finished Sapiens and Homo Deus by Yuval Noah Harari, which were fascinating in both their granularity and big picture insights.
Kelvin Wu, group assistant general manager, risk management & insurance, International SOS
Emerging TalentEmerging Talent
What/who have been your influences in the captive industry?
My colleagues and bosses who first recruited me into the risk consulting practice and gave me my first exposure to the captive industry. Their professionalism, knowledge and expertise set the benchmark and standards that I have strived to hold myself to ever since.
What is your impression of the industry?
That despite the widespread adoption of captives by companies around the world, it is still not a well understood concept compared to the more traditional risk financing and insurance solutions. At the same time, companies who utilise captives are generally seen to be the more mature and sophisticated in terms of their risk financing strategy, and thus the captive industry serves as a great signalling tool.
What are your aspirations for your career in the captive industry?
I believe that captives have a crucial role to play in the overall risk financing strategy of a company, and when leveraged properly can add great strategic value to the business.
I hope to be able to continue to educate and raise the awareness of captives, both in my capacity as a risk manager and also as a board member of PARIMA.
What advice do you have for someone considering a role in the industry?
That it can be a hidden gem in the traditional insurance industry, which can be quite fulfilling and rewarding!
Kelvin Wu
Emerging Talent
I have worked with Kelvin Wu since he started in the industry, and have seen him progress from a promising graduate trainee to a leading light in Asia’s risk management community.
In his current role he has successfully applied that knowledge to the benefit of his employer in a very practical sense.
He uses his leading role at PARIMA to advance professional risk management techniques, including the use of captives.
“
” George McGhieManaging director, captive practice
Willis Towers Watson
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The Texas captive market is still in its infancy but already has a defined character based around its bespoke regulations on captive structure and parent location
The Lone Parent State
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The high premium to captive ratio is evidence of the number of large businesses that operate out of Texas, and Walker says the unique way the statute is written supports a market with a small number of captives and high premium.
The key strength of the market, Walker notes, is that it “is very supportive to Texas business.”
She adds: “If you’re a Texas company with a significant Texas presence, it is a very attractive domicile, and there are some very large companies headquartered or with significant operations in Texas.”
A large number of the huge companies in Texas are from the oil and gas industry and have suffered quite badly over recent years.
“A significant number of companies in the state are in the oil and gas industry and are very sensitive to commodity prices,” says Marson, “the recent fall in oil prices over the last four or five years has meant companies in the oil and gas industry are sat on significant new operating losses.”
“The benefits of owning a captive exist for them, and hopefully once these companies get back on the feet and become profitable again they may consider forming a captive or expanding their current captive.”
According to Marson, the size of captive premiums in the state, means allowing a Texas company to have a captive in its home state is a key advantage to be considered.
He explains: “One of the main reason a Texas based company would choose to domicile here is to avoid having to pay self-procurement tax. If you’re a Texas based-organisation with a captive in another state then you have to be concerned about the premiums being subject to the tax, which is levied at 4.85 percent.”
“That’s $48,500 for every $1 million of premium you send to a captive outside the borders of Texas, which is fairly sizable. It’s a material number when you look at the size some of premiums that are being written in Texas today.”
According to the National Association of Insurance Commissioner’s statistics, $4.6 billion was written in total captive premium in Texas at year-end 2017, meaning that approximately $227 million would have been paid in self-procurement tax if the captives had been domiciled outside Texas.
Relationship between TDI and industry
The state regulator, the Texas Department of Insurance (TDI), can be viewed as both a strength and a weakness of the domicile. The relationship between the industry and the TDI
They say everything is big in Texas and captive insurance companies in the state are no different.
While the market is still in its infancy and is not huge in number of total captives, boasting 42 at year-end 2018, it produces more than $4.5 billion dollars in captive premium (at year-end 2017, when market size was 38 captives), making it the largest US domicile with less than 100 captives in terms of captive premium.
The Lone Star State is, perhaps more than anywhere, a domicile defined by the decisions it has made over its captive law. The law, which was established in 2014, only permits single-parent captive structures and specifically precludes companies from outside the state, or without a significant interest or operation in the state from forming a captive in Texas.
2018
Due to the legislation, Texas’ captive market is tightly linked to its economy, but it still appears to have experienced a similar slowdown in captive growth as many other domiciles. Four new captives were licensed in the state last year, marking another year of reduced growth (following eight new captives in 2017, and fourteen new captives in 2016), but in contrast to many of the other domiciles, there were no licences lost, closed or dissolved.
“Last year was fairly quiet,” says Andrew Marson, director at Strategic Risk Solutions and Texas Captive Insurance Association (TxCIA) board member, “but I think that would jive with a lot of the other states as well.”
Diane Walker, partner at Johnson Lambert and TxCIA treasurer and board member, however, says the market has is still seeing formations and continued to grow at a “steady rate as expected, given how the Texas legislation is written, its purpose and the types of captives it is set up to accommodate”.
The market
Texas’ two self-imposed limitations, over captive structure and location of parent, define the state’s market and Walker says they are evidence that the market is designed for a key purpose, “to support and serve Texas companies”.
Marson says that the limitations are a “very unique” part of the law and prove that it is “designed for Texas captive companies and not looking to attract business from other states, which is obviously quite the opposite of states like Vermont”.
He explains: “The single-parent captive structure is very much designed for the state’s target market, large Texas-based organisations, which can obviously work within the constraints of the law that exists today.”
The Lone Parent State
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has been proposed by some parts of the domicile from the very start.
He says: “I know there’s been some calls for potential expanding the law to include group captives.”
“I believe the initial law had group captives written into it but there were objections to that, as people felt they would compete with the traditional market, so, that was written out of the the initial law back in 2013.”
“It is still only single-parent captives that are offered in Texas, and based upon what I’ve heard, that isn’t going to be something that changes anytime soon.”
Outlook
Marson suggests that the state’s “solid law” and the stable growth in its early years is going to help the market to succeed moving forward.
“It hasn’t tried to do too much, too soon,” he says, “it has a solid foundation of locally owned captives, which is only going to be a great foundation for them to proceed.”
“I think the outlook is only positive and it is going to go from strength to strength.”
The self-contained nature of the Texas captive market means its growth is closely tied to the state’s economy and Marson says this makes him “only optimistic about the market prospects.”
“I think the growth in Texas will be driven by economic growth. The Texas economy drives the Texas growth. Other domiciles can piggyback off the benefits of nationwide growth but this domicile is focused on those Texas organisations.”
“The size of the companies with captives in Texas is great for the market. The nearly $5 billion in premium volume shows that a lot of the big players have captives and having their interest in the industry can only be a positive thing as we look to potentially expand the law in the future and keep everything going smoothly.”
Walker has a similarly optimistic view on the outlook for Texas but stresses that given the nature of the market it is important to temper expectations.
She says: “My expectation is for continued steady growth. I don’t think we will see any huge change.”
“There won’t be 100 captives at the end of the year, but it’s been growing at a steady, consistent pace and that will continue.” CIT
was highlighted by both Marson and Walker as a great positive. Marson notes that despite some education still taking place due to the domicile’s infancy “the TDI have been very open and receptive to ideas and very good in terms of understanding different people’s perspectives”.
Walker adds: “They’re supportive of formations and I think are receptive to meeting with people, providing feedback. It is a positive environment.”
On the negative side, the TDI does not have any staff that are fully dedicated to regulating captives and, as a result, the application and formation process for a new captive is usually a lot slower than in other domiciles. Marson suggests that this is something that could change in the future.
He says: “The state may look towards creating that separate dedicated division for regulation, which I think would be a positive thing. I don’t know what the tipping point of that will be, in terms of how many captives need to be licensed for that to happen.”
Regulatory changes
Recent changes to the state’s captive regulation may, amongst other things, help to speed up the application process for new captives. In December last year, the TDI amended the captive regulation to implement changes that had originally been passed into law by the Texas legislature in 2015 and 2017.
Among them was a change to implement procedural changes to the way in which captives are authorised, allowing the secretary of state to form a captive insurance company prior to receiving TDI approval of the captive’s formation documents.
Marson suggested this change was “huge” and would “streamline the process and reduce the time from submission to receiving the certificate of authority”.
Walker believes the market is beginning to come into its maturity, and as such, is unlikely to see any huge regulatory changes soon. The Texas legislature meets every other year and although 2019 is a legislative year, Walker says that from the perspective of the TxCIA there are no regulatory changes on the agenda.
She explains: “The feedback from our membership was that people were pretty happy and satisfied with the current legislation and that it meets their needs. But other organisations can bring forward a bill, which is something that happened in the last legislative session and might happen again this year.”
One potential amendment that may be proposed in the next few years is the expansion of the captive law to include group captives. Marson explains that this is an idea that
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22 Captive Insurance Times
Marsh has appointed Christopher Hetner, former senior cybersecurity advisor to the chairman of the US Securities and Exchange Commission (SEC), as managing director of its cyber risk consulting practice.
Hetner will be responsible for advising clients on cyber resilience and risk management strategies, as well as consult on global cybersecurity regulatory requirements and disclosure guidelines.
Hetner brings over 20 years of cybersecurity, risk management, and regulatory compliance experience to Marsh’s expanding cyber risk consulting practice.
At the SEC, he was also a leading member of the US Treasury financial banking information infrastructure committee where he provided leadership across a range of cybersecurity programmes impacting the financial services sector.
Prior to joining the SEC, Hetner held roles at EY, GE Capital, and Citigroup.
Hetner is based in New York and will report to Kevin Richards, global head of cyber risk consulting.
Richards commented: “Christopher Hetner’s proven track record of developing cybersecurity policy and programmes across
government and industry will provide clients with valuable insight into effectively managing their risk in the evolving cyber risk landscape.”
Hetner added: “I’m excited to join Marsh’s global team of experts to help organisations better understand their cyber exposure, make more informed cyber risk management decisions, and improve their resilience in the face of ever-changing cyber threats.”
South Carolina Department of Insurance (DoI) captive programme administrator Jeff Kehler will leave his role at the end of the month.
Kehler, who has spent more than 13 years with the department, will join Somers Risk Consulting as director of captive consulting services.
Somers Risk Consulting is a Charleston-based company that specialises in the design, structuring, and implementation of captive insurance and alternative risk financing programmes.
In his role as captive programme administrator, he is responsible for all the captive insurance companies licensed in South Carolina, the daily administration of the department, the overseeing of financial surveillance and regulation of captives, the licensing of captives, and promotion of the domicile.
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In addition to licensing over 200 captives at the DoI, Kehler has drafted legislation and testified before congressional committees.
He also participated in National Association of Insurance Commissioners working groups and task forces regarding risk retention group issues and served as an observer and reviewer for the International Association of Insurance Supervisors.
Prior to joining the DoI, Kehler also held multiple roles in the captive industry, including at Liberty Mutual Alternative Markets, CNA, Captive Resources, and Traditional Insurance Company Experience.
Kehler said he looks forward to working with Somers Risk Consulting managing director Kathryn Marsh and the rest of her team.
He added: “Kathryn Marsh is a wonderful person and a consummate professional and I’m looking forward to helping her grow her business.”
“I always thought that I would return to the private sector, having spent the majority of my career there, and this is a great opportunity to do that.”
Kehler reflected on his time at the DoI, explaining that he had been at the department for the majority of the time South Carolina has been a captive domicile.
He noted: “There are a couple of things that have stood out.”
“The ability to train and develop the junior members of the team so that they look at the business of regulation not as traditional green-eyeshade regulators but more consistent with the principle of proportionality in regard to captives.”
Kehler concluded: “Also, doing a thorough revamp of our captive legislation that has really set us on a good footing going forward.”
Holmes Murphy has expanded into the Houston and Central Texas markets under employee benefits (EB) expert Travis Brashear.
Brashear joins the company as vice president/market leader for South and Central Texas and will lead Holmes Murphy’s Houston team as the company expands its Texas EB division.
An EB expert with more than 20 years in the field, Brashear’s previous role was as chief growth officer at Imagine Health.
Prior to joining Imagine Health, he spent six years at Willis Towers Watson and helped to grow the company’s Houston office to one of the largest consulting firms in the state.
The expansion into Houston builds on the success of Holmes Murphy’s Dallas office, which opened in 1987 and is currently home to around 220 full-time employees.
Wally Gomaa, Holmes Murphy EB sales header and CEO of ACAP Health, commented: “As we enter into the Houston market, our team is focused on bringing innovative solutions tailored specifically to the companies in the area.”
“And, nobody knows this market better than Travis Brashear.”
Brashear said that having lived in Houston for 15 years he really loves the city.
He added: “I’ve been privileged to serve on the Mayor’s Wellness Council and lead the Houston Wellness Association (now the Houston Business Coalition on Health), as well as had the opportunity to consult with some of the most progressive employers in Houston.”
“I’ve seen firsthand the business community struggle to deliver affordable healthcare to their employees.”
“This role will allow me to bring the creative solutions I’ve spent a career creating to our clients, and the opportunity to build the best team in the industry.”
The North Carolina Captive Insurance Association (NCCIA) has elected Matt Holycross to its board of directors.
Holycross, whose term began on 1 January 2019, has spent more than six and a half years as director of finance for captive management firm The Taft Companies.
Concurrently, he holds the role of principal at Palmetto Consulting of Columbia.
Prior to joining Taft, Holycross served as CFO of National Unity Insurance, controller of Accident Insurance Company, and audit staff at Elliott Davis. CIT
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