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CITINBRIEF Latest news

Lee  Memorial  Health  System  leans  towards   captive  model  after  $15  million  payout                              


Latest news

Proposed  reform  of  1941  US  defence  act   could  create  captive  insurer  


Latest news

Florida lures captive insurance companies with new law TALLAHASSEE Â 05.07.2012

Kane  Malta  celebrates  moving  its  operations   to  new  premises  in  Zebbug  with  opening  party    


Consulting services

Jason  Flaxbeard   and   Matthew   Takamine   RI FRQVXOWLQJ ¿UP %HHFKHU &DUOVRQ WDON captive  insurance


$ QHZ ODZ WKDW ORZHUV FDSLWDO UHTXLUHPHQWV DQG LV â&#x20AC;&#x153;We  welcome   captive   insurers   to   Floridaâ&#x20AC;&#x2122;s   insurance   predicted  to  boost  captive  insurance  business  in  the   marketplace.  The  new  law  will  encourage  the  formation   US  State  of  Florida  became  effective  on  1  July. of  new  captive  insurers,  which  will  promote  increased  in-­ vestment  in  our  insurance  marketplace.  I  thank  governor   Florida   captive   insurance   legislation   became   effec-­ Scott   for   signing   this   bill   and   the   Florida   legislature   for   tive  in  1982,  but  the  state  currently  hosts  no  captive   passing   this   important   piece   of   legislation,â&#x20AC;?   said   Kevin   insurers.  Up  until  this  point,  state  law  allowed  for  the   McCarty,  Floridaâ&#x20AC;&#x2122;s  insurance  commissioner. creation   of   captive   insurers   and   industrial   insured   captive  insurance  companies. The  legislation  aids  the  formation  of  captive  insurers  in-­ terested  in  providing  various  types  of  property  and  casu-­ During  a  2012  regular  legislative  session,  the  Florida   DOW\LQVXUDQFH/LIHDQGKHDOWKLQVXUDQFHDUHVSHFLÂżFDOO\ legislature   passed   Committee   Substitute   for   House   excluded  from  the  permissible  uses  of  a  captive  insurer.     Bill   1101.   Floridaâ&#x20AC;&#x2122;s   governor,   Rick   Scott,   signed   the   bill  into  law  on  24  April  2012. It  could  have  a  positive  economic  impact  in  Florida  through   ,W VSHFLÂżHV FULWHULD IRU WKH IRUPDWLRQ LQFRUSRUDWLRQ the   costs   and   fees   that   are   associated   with   the   legisla-­ coverage,   capital   and   surplus,   reporting,   licensure   WLRQÂśV YDULRXV FDSWLYHVSHFLÂżF UHTXLUHPHQWV VXFK DV and  reinsurance  of  captive  insurers. state  licensing,  maintenance  of  a  principal  place  of  busi-­


Malta  turns  to  innovation  as  a  means  of  dif-­ ferentiating  its  captive  offering  after  acces-­ sion  to  the  EU


Caribbean jurisdictions

CEO  of   Capstone  Associated   Services,   6WHZDUW)HOGPDQGLVFXVVHVWKHEHQH¿WV of  a  Caribbean  domicile  


People moves

Gero  Michel   at   Montpelier,   McNamara   and  Le  Page  at  Kane,  Sidney  Williams  at   Strategic  Risk  Solutions  and  more...


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ACE  updates  platform  with  captive  tracking

MDS  Group  launches  protected  cell  company  

The  ACE  Group  has  updated  its  Worldview  platform  after  suggestions  from   clients  and  brokers.

European  and   Latin   American   insurance   and   reinsurance   brokerage   MDS   Group  has  launched  a  Protected  Cell  Company  (PCC).

readmore  p2

readmore  p2

NewsInBrief Florida  lures  captive  insurance   companies  with  new  law Continued  from  page  1

ness  in  Florida  or  maintenance  of  the  branch  op-­ erationâ&#x20AC;&#x2122;s  principal  place  of  business  in  Florida. ,W DOVR UHTXLUHV FDSWLYH LQVXUHUV WKDW DUH based   in   Florida   to   hold   at   least   one   annual   board  meeting  in  the  state  and  appoint  a  reg-­ istered   resident   agent   to   act   on   their   behalf   in  Florida.   According   to   Captive   Insurance   Companies   $VVRFLDWLRQ ÂżJXUHV D FDSLWDO UHTXLUHPHQW RI $100,000  is  needed  for  pure  captives  in  the  state,   and  $200,000  for  industrial  insured  captives.   &DSWLYHUHLQVXUDQFHFRPSDQLHVDUHUHTXLUHG to   have   a   minimum   of   the   greater   of   $300   million   or   10   percent   of   reserves   in   capital   and  surplus. $V IRU ORFDO RIÂżFH UHTXLUHPHQWV SXUH FDS-­ WLYHV DUH UHTXLUHG WR KDYH PLQLPXP VXUSOXV of  $150,000  while  industrial  insurers  that  are   LQFRUSRUDWHGDVVWRFNFRPSDQLHVDUHUHTXLUHG to  have  $300,000  in  minimum  surplus.  Indus-­ trial  insured  captives  that  are  incorporated  as   PXWXDOLQVXUHUVDUHUHTXLUHGWRKDYHDWOHDVW $500,000  in  surplus. â&#x20AC;&#x153;We  are  driven  to  respond  to  the  needs  of  our   clients   and   brokers   in   the   multinational   insur-­ ance   market,   and   captive   premium   payment   tracking   represents   the   third   round   of   invest-­ ment  in  the  ACE  Worldview  tool,  to  be  followed   Approximately  30  jurisdictions  have  enacted   by   many   more,â&#x20AC;?   said   Tim   Benson,   senior   vice   captive   insurance   laws   over   the   past   de-­ president  at  ACE  Multinational  Client  Group. cade,  with  one  of  the  distinguishing  features   of   the   various   laws   being   the   premium   tax   MDS  Group  launches  protected   rate  that  is  charged.   The   state   faces   stiff   competition   for   cap-­ tive  insurance  business  from  dozens  of  US   states,  including  Vermont,  Delaware,  South   Carolina,  Hawaii,  Missouri  and  Montana.  

cell  company  

9HUPRQW ZDV RQH RI WKH ÂżUVW VWDWHV WR HQDFW a  captive   law,   and   charges   a   sliding   scale   tax   based  on  the  amount  of  premiums  that  the  cap-­ WLYHFROOHFWV7HQQHVVHHXVHVDĂ&#x20AC;DWUDWHRISHU-­ cent  of  gross  premiums  that  are  collected.  The   Florida   law   provides   for   a   premium   tax   rate   of   1.75  percent  on  gross  premium  receipts.

Continued  from  page  1

Hospital  spokeswoman   Mary   Briggs   said   that   a   third   alternative,   the   captive   model,   would   mean   â&#x20AC;&#x153;alleviating   the   middle   manâ&#x20AC;?,   whether   it   meant   forming   an   insurance   company   and   paying   premiums   to   the   internal   company,   or   joining  a  group  that  has  an  existing  captive  in-­ surance  group. Richard  Akin,   Lee   Memorialâ&#x20AC;&#x2122;s   board   chairman,   added   that   the   boardâ&#x20AC;&#x2122;s   current   preference   for   the  captive  model  may  alter  after  going  through   the  costs.

A  statement  from  MDS  said  that  HighDome  PCC   will  simplify  the  captive  concept  that  is  used  by  large   â&#x20AC;&#x153;The   biggest   reason   for   trying   to   pursue   the   corporations,  enabling  organisations  to  reduce,  and   captive   model   is   we   have   heard   you   can   buy   have  long-­term  stability  in,  their  insurance  costs. reinsurance   for   up   to   30   percent   less   but   it   is   ULVNVSHFLÂżF<RXPXVWGHÂżQH\RXUULVN´KHVDLG HighDome   will   primarily   target   medium-­sized   â&#x20AC;&#x153;For  a  company  the  size  of  Lee  Memorial,  I  think   enterprises   and   larger   organisations   with   an   potentially  it  could  save  a  lot  of  money.  I  donâ&#x20AC;&#x2122;t   ACE  updates  platform  with   individual  strategic  risk.  It  is  a  100  percent  sub-­ know,  but  that  will  drive  our  decision.â&#x20AC;? sidiary   of   MDS   Group   and   is   fully   authorised   captive  tracking and   regulated   by   the   Malta   Financial   Services   Continued  from  page  1 Authority  to  conduct  both  insurance  and  reinsur-­ TPCC  looks  positive,  says  A.M.  Best The   platform,   which   enables   risk   managers   ance  business  in  short  tail  risks. and  their  brokers  to  monitor  and  manage  their   A.M.  Best  has  revised  the  outlook  of  Cana-­ multinational   insurance   programs,   now   in-­ Lee  Memorial  leans  towards   da-­based   Transportation   Property   and   Ca-­ cludes   captive   premium   payment   tracking   for   sualty  Company  (TPCC)  from  stable  to  posi-­ captive  model   both  locally  and  centrally  invoiced  multinational   tive  and  affirmed  its  financial  strength  rating   insurance  programmes. as  â&#x20AC;&#x153;A-­â&#x20AC;&#x153;  (â&#x20AC;&#x153;Excellentâ&#x20AC;?)  and  issuer  credit  rating   The  Lee  Memorial  Health  System  is  considering   as  â&#x20AC;&#x153;a-­â&#x20AC;?. The   new   captive   premium   enhancements   to   a   captive   insurance   model   to   safeguard   itself   Worldview   include   premium   tracking,   which   al-­ against  payouts  such  as  the  $15  million  claims   lows   users   to   follow   the   collection   of   premium   bill  that  it  had  to  settle  earlier  this  year. TPCC  is  a  pure  captive  insurance  company  that   payments   across   ACEâ&#x20AC;&#x2122;s   global   network,   and   provides  automobile  physical  damage,  general   reinsurance   summary,   which   tracks   the   status   Traditional  insurance  is  also  on  the  cards,  from   liability   and   property   insurance   coverage   for   of  reinsurance  payments  to  the  captive  and  re-­ Chartis,  with  a  $1.2  million  premium  to  AWAC/ TransLink   (the   South   Coast   British   Columbia   Torus,  with  a  $952,000  premium. insurance  panel. Transportation  Authority).


NewsInBrief Its  ratings  are  based  on  its  â&#x20AC;&#x153;excellentâ&#x20AC;?  capitali-­ Five  title  underwriters  form   sation  and  operating  performance,  and  a  strong   enterprise   risk   management   programme,   said   alliance  with  Lloydâ&#x20AC;&#x2122;s $0%HVW,WDGGHGWKDWÂłLQXULQJWRWKHEHQHÂżWRI WKHUDWLQJVLVWKHFDSWLYHÂśVIDYRXUDEOHSURÂżOHDV Five   title   underwriters   have   formed   a   reinsur-­ part  of  TransLinkâ&#x20AC;?. ance  alliance  with  Lloydâ&#x20AC;&#x2122;s  of  London. TPCC  has  demonstrated  its  â&#x20AC;&#x153;usefulness  and  ef-­ fectivenessâ&#x20AC;?   to   TransLink   over   many   years   as   LW SURYLGHV Ă&#x20AC;H[LELOLW\ IRU LQVXUDQFH SURJUDPPH VWUXFWXULQJ DQG VXEVWDQWLDO LQVXUDQFH FRVW HIÂż-­ ciencies,  added  the  ratings  agency. A.M.   Best   said   that   TPCCâ&#x20AC;&#x2122;s   ratings   could   im-­ prove  if  it  maintains  a  stable  underwriting  perfor-­ mance   and   reduced   overall   net   exposure   over   the  next  few  years. â&#x20AC;&#x153;Factors  that  could  lead  to  a  negative  outlook   or  a  downgrading  of  the  companyâ&#x20AC;&#x2122;s  ratings  are   a  material  loss  of  capital  from  either  claims  or   investments,   a   reduced   level   of   capital   that   does  not  support  the  ratings  or  an  increase  in   net  retention.â&#x20AC;? â&#x20AC;&#x153;TPCCâ&#x20AC;&#x2122;s   ratings   are   somewhat   linked   to   the   rating  of  TransLink;Íž  therefore,  unfavourable  op-­ erating   performance   or   material   loss   of   capital   could  result  in  changes  to  the  captiveâ&#x20AC;&#x2122;s  ratings.â&#x20AC;?

The  American   Title   Reinsurance   Alliance   (ATRA)   was   formed   to   ensure   that   the   partici-­ pating  companies  have  a  secure  source  of  rein-­ surance  for  large  transactions.

Demotech  president   Joseph   Petrelli   said:   â&#x20AC;&#x153;Lloydâ&#x20AC;&#x2122;s  of  London  has  a  legendary  track  record   of   backing   up   its   promises.   Members   of  ATRA   ZLOOOLNHO\SDVVRXUUHLQVXUDQFHUHYLHZZLWKĂ&#x20AC;\-­ ing  colours.â&#x20AC;?

Former  E.W.  Blanch  employees   form  new  business

Dan  Koshiol,  formerly  of  Guy  Carpenter  &  Co.,   John  B.  Collins  and  Associates  and  E.W.  Blanch   The  participating  title  underwriters  are:  Agents   Company,   has   formed   new   company   StoneHill   National   Title   Insurance   Company,   Missouri;Íž   Reinsurance  Partners. Alliant   National   Title   Insurance   Company,   Colorado;Íž   Attorneysâ&#x20AC;&#x2122;   Title   Guaranty   Fund   of   Koshiol,   a   15-­year   veteran   of   major   reinsur-­ Colorado,   Colorado;Íž   Connecticut   Attorneys   DQFHEURNHUDJHÂżUPVLVMRLQHGLQWKHYHQWXUH Title   Insurance   Company,   Connecticut;Íž   and   by   Lindsay   Ginter,   senior   vice   president,   who   Security   Title   Guarantee   Corporation   of   Bal-­ also  held  positions  at  Collins  and  E.W.  Blanch,   timore,  Maryland. most  recently  managing  a  reinsurance  captive   for  Wells  Fargo. Rich   Patterson,   the   president   of   Connecticut  At-­ torneys   Title   Insurance   Company,   said:   â&#x20AC;&#x153;This   programme   enhances   our   ability   to   insure   large   â&#x20AC;&#x153;We  see  a  marketplace  need  for  a  broker  who   transactions  while  reducing  our  exposure  to  loss.â&#x20AC;? will  solely  invest  time  and  resources  on  their  cli-­ ents,â&#x20AC;?  Koshiol  said.  â&#x20AC;&#x153;As  brokers  consolidate  and   â&#x20AC;&#x153;In   addition,   it   allows   us   to   obtain   reinsur-­ look  for  additional  revenue  growth,  some  clients   ance   on   very   favorable   terms.   This   will   en-­ are  being  asked  to  purchase,  at  an  added  cost,   able  us  to  be  more  competitive  for  multi-­mil-­ products   and   services   which   historically   have   lion  dollar  transactions.â&#x20AC;? been  included  in  the  brokerage  relationship.â&#x20AC;?

Captive Insurance

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The AMS Insurance Division is comprised of a

This includes access to a network of other

dedicated team of professionals with over 40 years of experience in the global insurance market and

professional service providers including actuaries, auditors and reinsurers to ensure a

operates as a licensed insurance manager in two key domiciles, the British Virgin Islands and Nevis.

turnkey approach to your captive insurance requirements.

The Insurance Division at AMS provides a comprehensive range of services to captive

If you require any assistance please contact: Derek Lloyd (

insurance companies from the initial feasibility study, through to license approval and the

Tel: +1 284 494 4078

subsequent management and compliance functions once the license has been approved.

AMS British Virgin Islands +1 284 494 3399

AMS Hong Kong +852 2147 2108

AMS London +44 20 7488 2782


AMS Nevis +1 869 469 2676 nevis@amsbvi


New  US  bill  could  create   captive  insurer

A  House  Oversight  and  Government  Reform   Committee   investigation   also   found   that   in-­ surance   companies   providing   insurance   un-­ GHUWKH'HIHQVH%DVH$FWLQ,UDTDQG$IJKDQ-­ Proposed  reform  of  the  US  Defense  Base  Act   istan  have  made  underwriting  profits  that  are   insurance   programme   would   create   a   captive   significantly   higher   than   those   of   traditional   insurer  to  cover  defence  contractor  employees. workersâ&#x20AC;&#x2122;   compensation   insurers,   according   to  the  committee. Elijah   Cummings,   who   is   the   US   Representa-­ tive   for   the   State   of   Marylandâ&#x20AC;&#x2122;s   7th   congres-­ â&#x20AC;&#x153;There   is   absolutely   no   reason   American   tax-­ sional   district,   proposed   the   Defense   Base   payers   should   be   lining   the   pockets   of   private   Act   Insurance   Improvement   Act   of   2012   to   insurance   companies,â&#x20AC;?   said   Cummings.   â&#x20AC;&#x153;This   the  House  Oversight  and  Government  Reform   bill  would  save  billions  of  dollars  while  improv-­ Committee,  of  which  he  is  the  ranking  member,   ing  the  ability  of  contractor  employees  who  risk   their   lives   in   war   zones   to   obtain   the   medical   in  early  June. care  and  support  they  deserve.â&#x20AC;?

More  than  40  local  dignitaries   and  representa-­ tives   from   local   and   international   businesses   in  Malta,  as  well  as  members  of  Kaneâ&#x20AC;&#x2122;s  senior   executive   team,   including   Kane   groupâ&#x20AC;&#x2122;s   CEO   Simon  Hinshelwood,  attended  an  opening  party   that  was  held  to  celebrate  the  occasion. Kaneâ&#x20AC;&#x2122;s   team   of   practitioners   in   Malta   provides   a   range   of   life,   pension   and   insurance   (LPI)   administration   and   captive   insurance   manage-­ ment  services. 7KH QHZ RIÂżFH LV ORFDWHG LQ WKH &HQWUDO %XVL-­ ness  Centre,  Mdina  Road,  Zebbug,  Malta.

Graziella  Vella,   the   managing   director   of   Kane   (Malta),   said:   â&#x20AC;&#x153;The   new   premises   provide   us   with   an   excellent   platform   not   only   to   continue   to  deliver,  but  also  to  enhance  and  expand  our   range  of  LPI  and  captive  management  services.   To  support  our  efforts  to  achieve  this,  we  expect   The   defence   and   labour   departments   would   to  announce  a  number  of  new  appointments  to   have   12   months   from   enactment   of   the   bill   to   our  team  in  the  coming  months.â&#x20AC;? A  2009  US  Pentagon  study  found  that  $250  mil-­ implement  a  captive  insurance  programme. lion  a  year  could  be  saved  if  a  government  self-­ Hinshelwood  added:  â&#x20AC;&#x153;Malta  plays  a  key  role  in   insurance  programme  was  used  instead  of  the   the  overall  strategic  goals  of  Kane.  We  have  an   1HZRIÂżFHIRU.DQHLQ0DOWD existing  one. extremely   dedicated   team   here   which   encom-­ The   Defense   Base   Act,   which   was   enacted   LQ  UHTXLUHV GHIHQFH FRQWUDFWRUV WR SXU-­ chase   workersâ&#x20AC;&#x2122;   compensation   insurance   for   employees   who   work   overseas   from   private   insurance   companies.  This   allows   contractors   and   insurance   companies   to   negotiate   their   own  rates.

The  study  said:  â&#x20AC;&#x153;In  the  long  run,  the  self-­insur-­ ance   alternative   may   have   the   greatest   poten-­ tial  for  minimising  Defense  Base  Act  insurance   costs,   and   it   has   several   administrative   and   compliance  advantages  as  well.â&#x20AC;?

Cummingsâ&#x20AC;&#x2122;s  bill   would   make   the   defence   and   labour   departments   establish   a   self-­insurance   programme  in  which  the  government  would  pay   GLUHFWO\IRUPHGLFDODQGGLVDELOLW\EHQHÂżWV

Kane  (Malta)  has  moved  its  operations  to  new   passes  a  wealth  of  talent  and  experience,  and   Kane  is  keen  to  build  upon  the  successes  they   premises  in  Zebbug. have  achieved.  By  moving  to  these  new  prem-­ Joseph   Bannister,   the   Chairman   of   the   Malta   ises,  we  aim  to  demonstrate  our  clear  commit-­ )LQDQFLDO 6HUYLFHV $XWKRULW\ RIÂżFLDOO\ RSHQHG ment  to  expanding  the  range  of  services  we  of-­ WKHRIÂżFH fer  from  our  Malta  operation.â&#x20AC;?


NewsInBrief New  Jerseyâ&#x20AC;&#x2122;s  Iron  Horse  is  a+

ern  A lliance  Insurance  Group  (EAIG),  histor-­ strength  rating  of  A-­  (excellent)  and  issuer  credit   ically  profitable  operating  results,  and  sound   UDWLQJRIÂłD´ZDVDIÂżUPHG $0 %HVW KDV DIÂżUPHG WKH ÂżQDQFLDO VWUHQJWK standalone  capitalisation. Iowa-­based  Toyota  Motor  Insurance  Companyâ&#x20AC;&#x2122;s   rating  of  A  (Excellent)  and  issuer  credit  rating   (TMICâ&#x20AC;&#x2122;s)  revised  outlook  suggests  solid  capitali-­ of  â&#x20AC;&#x153;a+â&#x20AC;?  of  Iron  Horse  Insurance  Company.  Iron   These  positive  rating  factors  are  partially  offset   sation  and  strong  underwriting  results. Horse   is   a   direct   captive   subsidiary   of   Chev-­ by  Eastern  Reâ&#x20AC;&#x2122;s  exclusive  reliance  on  EIHI  and   ron  Corporation. EAIG  for  production  of  all  of  its  business. However,  TMICâ&#x20AC;&#x2122;s  outlook  could  be  altered  if  its  op-­ erating  performance  depreciates  below  expectation. These  positive  rating  factors  are  partially  offset  by   Iron  Horseâ&#x20AC;&#x2122;s  high  net  loss  exposures,  as  the  cov-­ Eastern  Re  is  a  cell  captive,  whose  general  cell   erages  provided  tend  to  result  in  claims  that  are   is  a  wholly  owned  subsidiary  of  EIHI  and  utilises   Looks  can  be  deceiving,  says   FKDUDFWHULVHGDVORZIUHTXHQF\EXWKLJKVHYHULW\ the   expertise   of   Employers   Alliance,   a   Penn-­ sylvania-­domiciled   insurance   services   provider   Willis  Re In  its  role  as  a  captive  insurer,  Iron  Horse,  along   and  member  of  EAIG  that  acts  as  the  third  party   with   Heddington   Insurance,   currently   provides   administrator  and  provides  services  for  all  of  the   Rate  increases  in  North  American  and  interna-­ insurance  products  for  Chevron  and  its  subsid-­ cells  of  Eastern  Re. tional   reinsurance   markets   are   due   to   modest   iaries.  The  insurance  needs  of  Chevron  are  sup-­ losses  and  poor  resultsâ&#x20AC;&#x201D;not  a  hardening  mar-­ plied   through   these   captive   operations,   where   Eastern   Re   issues   preferred   shares   to   its   cell   ket,  found  a  report  by  Willis  Re. appropriate,  and  the  commercial  market. owners,  which  are  agent  or  group  captives  that   7KHUHSRUWHQWLWOHG/RRNVFDQEH'HFHLYLQJÂżQGV purchase   workersâ&#x20AC;&#x2122;   compensation   coverage   Iron  Horse  and  the  other  Chevron  captives  pro-­ from  EIHI.  These  agent  and  group  captives  par-­ WKDWLQVSLWHRIKHDGOLQHÂżJXUHVSUHGLFWLQJUDWHLQ-­ vide  comprehensive  coverage  above  Chevronâ&#x20AC;&#x2122;s   WLFLSDWH LQ WKH SURÂżWV DQG ORVVHV RI WKH FHOO IRU creases,   there   is   enough   volume   in   the   market.   The   targeted   underwriting   approach   taken   by   internal  retentions. which  they  are  the  owners. most  reinsurers  to  manage,  analyse  and,  in  some   cases,  de-­risk  their  portfolios,  has  been  rewarded   Eastern  Re  is  â&#x20AC;&#x153;excellentâ&#x20AC;? This  dynamic  provides  added  incentive  to  the  agent   with  differential  pricing,  the  report  found.  This  ap-­ or   group   captive   to   prevent   adverse   selection   for   proach  has  been  welcomed  by  cedents,  but  does   $0 %HVW KDV DIÂżUPHG WKH ÂżQDQFLDO VWUHQJWK the  business  being  assumed  by  Eastern  Re. not  support  a  generalised  market  hardening. rating   of   A   (Excellent)   and   issuer   credit   rating   of  â&#x20AC;&#x153;aâ&#x20AC;?  of  Eastern  Re,  SPC.  The  outlook  for  both   â&#x20AC;&#x153;The  reinsurance  market  is  stable  and  orderly,  but   ratings  is  stable. Toyotaâ&#x20AC;&#x2122;s  captive  rating  goes   the   reality   is   that   it   is   not   hardening,â&#x20AC;?   said   Peter   Hearn,  chairman  of  Willis  Re.  â&#x20AC;&#x153;In  fact,  some  buyers   The   ratings   recognise   Eastern   Reâ&#x20AC;&#x2122;s   stra-­ from  stable  to  positive with  loss-­free  programmes,  even  in  areas   of   peak   tegic   affiliation   with   its   holding   company,   Eastern   Insurance   Holdings   (EIHI)   and   the   Toyotaâ&#x20AC;&#x2122;s   captive   rating   was   revised   from   a   exposure,   have   managed   to   obtain   risk-­adjusted   member  companies   that   make   up   the   East-­ VWDEOH WR D SRVLWLYH RXWORRN DQG WKH ÂżQDQFLDO rate  reductions  at  the  1  June  and  1  July  renewals.â&#x20AC;?



Standing out in a crowd CIT talks to Jason Flaxbeard and Matthew Takamine of insurance brokerage HUKJVUZ\S[PUNĂ&#x201E;YT)LLJOLY*HYSZVUHIV\[ILPUNKPÉ&#x2C6;LYLU[PUJHW[P]LPUZ\YHUJL MARK  DUGDALE  REPORTS

Flaxbeard %HHFKHU &DUOVRQ LV XQLTXH LQ WKDW ZHRIIHUDVLQJOHSUR¿WFHQWUHPRGHOVRWKDWRXU clients  have  access  to  all  of  our  national,  top-­tier   resources  without  complicated  political  or  local   SUR¿W FHQWHU PHQWDOLWLHV :H XQGHUVWDQG WKDW your  exposures  are  different  and  work  diligently   to   provide   appropriate   alternatives,   across   our   service  spectrum,  to  match  your  needs.

Jason  Flaxbeard

Senior  managing  director Beecher  Carlson

From  a  philosophical  perspective,  we  try  to  of-­ fer  the  best  services  that  we  possibly  can.  Any   Another  differentiator  is  that  we  are  able  to  meet   skills  that  we  have  or  products  that  we  offer  give   the   SSAE   16   reporting   standard   for   reporting   us  that  extra  ability  to  consult.  CIT on   the   internal   controls   in   our   organisation.   It   is   very   useful   for   public   companies   because   it   allows   them   to   know   that   they   can   rely   on   the   ¿QDQFLDOVWKDWZHJLYHWKHPDVRXUFRQWUROVDUH being  audited  by  an  external  party  and  they  can   FRQVROLGDWH WKRVH ¿QDQFLDOV LQWR WKHLU FRQVROL-­ dated  numbers  without  additional  control  work.   Indeed,   the   SSAE   16  Type   II   report   may   even   reduce  external  audit  fees  for  our  clients.

However,  offshore   domiciles   are   beginning   to   UHDOO\ Ă&#x20AC;RXULVK DQG WKHLU JURZWK LV FRQWLQXLQJ They  tend  to  be  the  largest  domiciles  and  they   have  become  very  good  at  regulating  and  look-­ ing   after   captives.   Generally,   as   long   as   cap-­ WLYH GRPLFLOHV DUH ZHOO UXQ WKH\ WHQG WR HTXDO out.   What   you   have   to   look   for   when   selecting   a   domicile   are   the   nuances.   For   example,   the   NRRA,   which   is   a   part   of   the   US   Dodd-­Frank   Act,   may   levy   a   tax   on   companies   providing   LQVXUDQFH FRYHUDJH RXWVLGH RI WKHLU KHDGTXDU-­ WHUHG VWDWH ,I \RX DUH KHDGTXDUWHUHG LQ 1HZ <RUN\RXPD\ORRNDW1HZ<RUNRYHU9HUPRQW Takamine:   There   are   some   excellent   manag-­ as   a   domicile   for   your   captive   so   that   you   can   ers  out  there,  so  we  try  to  hire  the  best  possible   manage  that  tax  liability.   people  as  a  means  of  differentiating  the  services   that  we  provide.  We  are  willing  to  spend  more  on   How  do  you  work  with  your  clients   KLULQJSHRSOHZKRDUHTXDOLÂżHG&3$VDQGDUHH[-­ perienced  professionals  in  the  captive  insurance   to  evaluate  these  nuances? industry.  Some  of  our  competitors  outsource  their   Matthew   Takamine:   We   do   it   on   a   client-­by-­ DFFRXQWLQJDQGEDFNRIÂżFHRSHUDWLRQVWRUHGXFH FOLHQW EDVLV :H ORRN DW HDFK FOLHQWÂśV VSHFLÂżF their  costs  of  labour,  but  to  us,  such  practices  re-­ circumstances,   which   are   key   to   them,   and   sult  in  a  product  that  is  more  transactional  rather   we   carry   out   a   domicile   analysis   comparing   than  consultative,  and  that  is  where  we  can  truly   what   we   think   would   be   the   top   domiciles   for   provide  value-­added  services  to  our  clients  and   that   company.   We   weigh   a   variety   of   factors,   reduce  their  overall  cost  of  risk.   including   geographical   proximity   to   the   par-­ ent  company,  the  working  relationship  with  the   regulator,  the  cost  of  doing  business,  taxes  and   other   relevant   factors.   We   assess   all   issues   and  make   a   recommendation   to   the   company   on   where   they   should   be   domiciled.   For   our   existing  clients,  we  have  a  duty  to  periodically   review  their  current  domiciles  to  see  if  they  are   client  appropriate.

that  we  provide.  This  is  all  of  the  time,  whether   ZH DUH EXLOGLQJ WKHLU FDSWLYH UXQQLQJ LW ¿WWLQJ it   in   with   their   overall   brokerage   operations,   or   anything  else.  When  these  services  are  provid-­ ed  in  an  integrated,  seamless  manner,  we  can   provide  a  better  product.

Senior  vice  president Beecher  Carlson

Jason  Flaxbeard:   Bermuda   and   the   Cayman   ,VODQGVZHUHWKHTXLFNHVWWRPDUNHWDQGFDPH into  being  before  the  US,  so  a  lot  of  the  legacy   accounts  are  still  in  those  jurisdictions.  The  de-­ ciding   difference   between   domiciles   offshore   and   onshore   is   often   that   offshore   domiciles   have  a  much  better  capitalisation  structure.  It  is   possible  to  write  more  premiums  with  less  capi-­ tal  offshore  than  it  is  onshore.  Having  said  that,   there  are  taxation  issues  in  offshore  domiciles.   Unfortunately,   there   is   also   a   perception   issue   offshore   too.   Companies   have   been   known   to   ask  whether  keeping  money  offshore  is  an  ap-­ propriate  use  of  American  dollars.

many  alternatives  to  traditional  insurance,  hav-­ ing  pioneered  many  of  the  most  innovative  cap-­ tive  design  concepts  that  exist  in  the  industry.  I   would  say  that  our  key  differentiator  is  that  we   are  a  captive  manager  and  a  consultant.  We  try   to  look  at  a  captive  and  consult  on  new  uses  of  a   captive,  better  uses  of  assets  that  are  in  a  cap-­ tive   and   better   ways   of   viewing   a   captive.   Our   competitors   can   be   transactional   in   the   sense   that  their  consulting  services  do  not  join  up  with   their   other   services,  such  as  accounting.  Each   one  of  them  has  a  consulting  practice,  but  what   we   do   differently   is   present   all   of   our   services   together.  Matt  Takamine  is  capable  of  doing  all   of  the  consulting  and  all  of  the  accounting  for  a   particular   client,   as   can   most   of   the   people   on   my  captive  team.

Matthew  Takamine

How  do  you  view  the  onshore  versus   offshore  debate?

How  does  Beecher  Carlson  integrate   its   insurance   brokerage   and   cap-­ tive  management  services?

Takamine:  Of  the  30  or  so  captive  accounts  that   we  take  care  of  in  Hawaii,  I  would  say  that  40   percent  are  brokerage  clients  as  well.  We  spend   a  considerable  amount  of  time  working  with  our   brokerage   team   to   properly   service   those   ac-­ How  does  Beecher  Carlson  differentiate   counts.  The  remaining  accounts  are  clients  who   we  only  provide  with  captive  management  ser-­ itself  from  its  competitors? vices,   although   we   will   often   provide   actuarial   Flaxbeard:   Beecher   Carlsonâ&#x20AC;&#x2122;s   history   lies   in   and  other  consulting  services  to  them  too. DOWHUQDWLYHÂżQDQFLQJVROXWLRQVDQGFDSWLYHPDQ-­ agement.   For   more   than   30   years,   we   have   There  is  a  high  degree  of  coordination  between   helped   clients   to   explore   and   understand   the   captive   management   and   the   other   services  



Competitiveness is the mother of invention Since Maltaâ&#x20AC;&#x2122;s accession to the EU, the captive insurance domicile has turned [VPUUV]H[PVUHZHTLHUZVMKPÉ&#x2C6;LYLU[PH[PUNP[ZVÉ&#x2C6;LYPUNHZ*0;Ă&#x201E;UKZV\[ MARK  DUGDALE  REPORTS The   captive   insurance   industry   is   getting   mightily  competitive.  There  are  more  than  60   active  domiciles,  according  to  CICAâ&#x20AC;&#x2122;s  domicile   listings.   Domiciles   from   the   US,   Europe   and   the   Caribbean   contribute   the   greatest   share   WR WKLV ÂżJXUH ZKLOH GRPLFLOHV IURP &DQDGD South   America   and   Asia   also   feature.   New   domiciles   are   also   entering   the   captive   busi-­ nessâ&#x20AC;&#x201D;the   US   State   of   Floridaâ&#x20AC;&#x2122;s   captive   leg-­ islation   became   effective   on   1   July.   With   so   much   choice,   captive   insurance   companies   will   look   to   match   a   domicile   to   its   individual   QHHGV PHDQLQJ WKDW RQHVL]HÂżWVDOO GRPL-­ ciles  could  be  overlooked. This  underlines  the  importance  of  domiciles  dif-­ ferentiating  themselves.  Each  jurisdiction  needs   DXQLTXHVHOOLQJSRLQWDQGZKLOHLWPD\QRWEH the   only   reason   why   a   captive   insurance   com-­ pany   chooses   a   particular   domicile,   it   acts   as  

DQ DGGLWLRQDO EHQHÂżW WKDW D FDSWLYH LQVXUDQFH structures.  Malta  recognised  that  if  it  wanted  to   company  will  not  be  able  to  get  anywhere  else. differentiate  itself  from  its  competitors  in  the  EU,   the  PCC  legislation  could  help  achieve  this.â&#x20AC;? Malta   is   a   domicile   that   understands   the   im-­ portance  of  differentiating  factors.  When  it  be-­ Dr   Matthew   Bianchi,   a   partner   in   the   insur-­ came   a   member   of   the   EU   in   2004,   it   moved   ance   and   pensions   practice   at   Malta-­based   TXLFNO\WRLPSOHPHQW3URWHFWHG&HOO&RPSDQ\ ODZÂżUP*DQDGR $VVRFLDWHV$GYRFDWHVH[-­ (PCC)  legislation. plains  that  a  PPC  is  a  normal  trading  company   with  the  ability  to  establish  â&#x20AC;&#x2DC;cellsâ&#x20AC;&#x2122;  within  itself,   Clive  James,  the  COO  of  Kane,  which  recently   so  that  assets  that  are  attributable  to  the  cell   PRYHG LWV 0DOWD RIÂżFH WR QHZ SUHPLVHV DV LW (cellular   assets)   can   be   segregated   from   as-­ looks  to  expand  its  captive  and  life  and  pension   sets  that  are  not  attributable  to  the  cell  (non-­ administration   businesses   on   the   island,   says:   cellular  assets). Âł3&&V ZHUH ÂżUVW HVWDEOLVKHG LQ *XHUQVH\ LQ $QXPEHURIGRPLFLOHVTXLFNO\UHFRJQLVHG He  adds:  â&#x20AC;&#x153;The  liabilities  of  the  coreâ&#x20AC;&#x201D;as  the  non-­ that   they   provided   an   alternative   market   po-­ FHOOXODUDVVHWVDUHNQRZQ²PD\QRWEHVDWLVÂżHG tentially  for  smaller  captives,  but  also  that  they   out  of  the  assets  of  the  cell.  Seen  the  other  way,   ZHUHDPXFKPRUHHIÂżFLHQWZD\RIXVLQJFDSLWDO creditors   of   a   cell   have   their   claims   insulated   The  upfront  costs  and  running  costs  are  less  in   from  claims  of  creditors  of  the  core  and  of  credi-­ a   PCC,   and   also   theyâ&#x20AC;&#x2122;ve   proven   to   be   robust   tors  of  other  cells.  Our  law  provides  for  mecha-­


Domicile0ROlLE nisms  which  ensures  this  principle  remains  sat-­ To  stay  competitive,  Malta  has  to  get  innovative,   James   says:   â&#x20AC;&#x153;I   would   add   that   while   [Maltaâ&#x20AC;&#x2122;s]   LVÂżHGDWDOOWLPHV´ according   to   Bianchi.   He   says   that   innovation   legislation  is  capable  of  dealing  with  such  struc-­ is   a   key   component   to   the   success   of   captive   ture,  itâ&#x20AC;&#x2122;s  also  important  to  make  sure  the  infra-­ Captive  owners  subscribe  to  cell  shares  that  are   insurance,  especially  in  light  of  the  current  eco-­ structure   is   there   as   well.   The   ILS   is   an   area   that   we   at   Kane   are   closely   involved   in,   but   at   issued   by   a   PCC   in   order   to   establish   cells   in   nomic  and  regulatory  scenario. present  much  of  this  business  is  conducted  by   that   PCC.   Bianchi   says:   â&#x20AC;&#x153;The   proceeds   of   the   FHOO VKDUH LVVXH FRQVWLWXWH WKH ÂżUVW FHOOXODU DV-­ â&#x20AC;&#x153;Though  innovation  may  consist  of  incremental   our  operations  in  Cayman  and  Bermuda.  At  the   sets   attributable   to   the   cell.   While   the   core   of   improvements  as  for  instance  improvements  to   HQGRIWKHGD\KRZHYHULWÂśVDÂżQLWHPDUNHWRXW the  PCC  is  capitalised  to  meet  minimum  capital   pricing  and  the  understanding  of  risks,  innova-­ there  and  Malta  has  to  recognise  that  it  needs   UHTXLUHPHQWVLQWHUPVRIFXUUHQWVROYHQF\OHJLV-­ tion   of   the   disruptive   type   is   also   key.   We   un-­ a  wide  skill  set  to  expand  on  their  current  busi-­ lation,  the  cell  is  capitalised  with  any  additional   derstand  that  the  application  of  Solvency  II  will   ness  model.â&#x20AC;? FDSLWDOWKDWZLOOEHUHTXLUHGLQRUGHUWRFDUU\RQ likely  herald  a  period  of  innovation  in  the  insur-­ the  proposed   operation   through   the   cell.   Com-­ ance   market   at   large   including   in   the   captive   As  a  captive  insurance  domicile,  Malta  is  do-­ pared  to  standalones,  cells  may  present  a  less   insurance   and   alternative   risk   transfer   sphere.   ing   the   business.   There   are   13-­affiliated   in-­ 0DOWD KDV DOUHDG\ FRQÂżUPHG LWV DSWLWXGH WR LQ-­ capital-­intensive  alternative.  This  prospect  may   surance  and  reinsurance  companies  (as  pure   be   particularly   attractive   to   small   and   medium-­ novation:   It   is   the   only   EU   member   state   with   captives  are  known  in  terms  of  Maltaâ&#x20AC;&#x2122;s  insur-­ protected   cell   and   incorporated   cell   legislation   sized  captive  owners.â&#x20AC;? ance   legislation),   eight   PCCs,   17   protected   on  its  statute  books.â&#x20AC;? cells   and   25   insurance   principals   operating   Although  Malta  has  differentiated  itself  from  its   from   Malta,   says   Bianchi.   During   2011,   the   European   competitors  and  focused  on  its  cap-­ annual   gross   premium   written   for   entities   tive  insurance  offering,  this  does  not  mean  that   under   management   was   nearly   â&#x201A;Ź1.8   billion,   the  island  will  rest  on  its  laurels.  James  points  to   according   to   Malta   Insurance   Managers  As-­ Munich  Reâ&#x20AC;&#x2122;s  decision  to  set  up  in  Maltaâ&#x20AC;&#x201D;â&#x20AC;&#x153;from   sociation   figures.   Innovating   to   stay   ahead   a   reinsurance   perspective,   [that]   is   a   fairly   big   of   competitors   will   help   Malta   to   continue   moveâ&#x20AC;?â&#x20AC;&#x201D;and  the  fact  that  the  island  is  looking  at   to   attract   captive   insurance   business   to   its   insurance-­linked  securities  (ILS),  as  indications   shores,   and   as   time   goes   on,   it   can   decide   that  Malta  does  not  consider  itself  to  be  a  niche   whether   it   needs   to   diversify   so   that   it   can   attract  other  types  of  business.  CIT captive  insurance  domicile.

Although  Malta  has   differentiated  itself   from  its  European   competitors  and   focused  on  its  captive   insurance  offering,   this  does  not  mean   that  the  island  will  rest   on  its  laurels

Âł3&&V DUH XVHG IRU ÂżQDQFLDO SURGXFWV DQG LQ-­ VXUDQFHV UDQJLQJ IURP ÂżQDQFLDO ZDUUDQWLHV right  through  to  smaller  captives,â&#x20AC;?  adds  James.   â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve   also   seen   some   transformer   business   and   life   business   go   through   PCC   structures   DVZHOO7KHUHDVRQWKH\DUHVRFDSLWDOHIÂżFLHQW LVEHFDXVHWKHFDSLWDOLVLQWKHFRUH<RXGRQÂśW need  to  put  two  or  three  million  euros  in  to  ac-­ tually   set   up   the   business.   This   is   one   of   the   reasons   why   they   are   becoming   increasingly   popular  in  Malta.â&#x20AC;? Maltaâ&#x20AC;&#x2122;s   PCC   ability   is   the   tip   of   the   iceberg.   As   a   part   of   the   EU,   it   also   offers   captive   owners   easy   access   to   the   EU   through   the   passporting   regime,   an   available   regulator   and   lower   costs   when   compared   to   other   EU   domiciles.   It   also   enables   captive   own-­ ers  to  establish  Incorporated  Cell  Companies   (ICCs)  through  regulations  that  were  enacted   in  2011,  says  Bianchi. James   adds:   â&#x20AC;&#x153;What   Malta   has   sought   to   do   is   FDSLWDOLVHRQWKHPDQ\EHQHÂżWVLWFDQRIIHUIURP a   captive   perspective   in   what   is   a   relatively   competitive  market  place,  and  has  put  in  place   a  regulatory  structure  which  is  focused  on  cap-­ tive   insurance   rather   than   the   broader   general   insurance  market.â&#x20AC;?



Domiciles that make sense Stewart  Feldman,  the  CEO  and  general  counsel  of  Capstone  Associated   6HUYLFHVGLVFXVVHVWKHEHQH¿WVRIVHOHFWLQJD&DULEEHDQGRPLFLOH MID-­MARKET  COMPANIES There  has  been  a  proliferation  of  US  domiciles   adopting   captive   legislation   over   the   past   sev-­ eral   years.   The   push   began   with   Vermont   in   the  early  1980s  with  a  view  to  creating  jobs  in   an   otherwise   remote   part   of   the   country,   with   many  states  joining  the  bandwagon,  especially   in  recent  years.  States  hungry  for  revenue  have   jumped   at   what   they   perceive   to   be   an   oppor-­ tunity  for  a  new  source  of  both  revenue  and  lo-­ cal   jobs,   given   the   fact   that   50   percent   of   the   US   property   and   casualty   insurance   market   is   written  through  captives.  We  believe  that  these   states  will  soon  realise  the  error  of  this,  as  oth-­ ers   have   already   discovered,   and   they   will   re-­ DOLVHWKDWFDSWLYHUHJXODWLRQUHTXLUHVVLJQL¿FDQW investment   in   infrastructure.   Legal   advisors   have   already   recognised   the   problems   facing   many  US  domiciles  looking  to  collect  taxes  and   fees,  but  are  neither  staffed  nor  experienced  in   captive  insurance  regulation.

Kentucky,  Maine,   Montana,   Missouri,   Nevada,   1HZ -HUVH\ 1HZ <RUN 5KRGH ,VODQG 6RXWK Carolina,  South  Dakota,  Tennessee,  Utah,  Ver-­ mont,  Virginia  and  West  Virginia.  Most  of  these   states  have  come  online  in  the  last  few  years.   With  the  adoption  of  the  US  Dodd-­Frank  Actâ&#x20AC;&#x2122;s   NRRA   (the   Non-­admitted   and   Reinsurance   Reform  Actâ&#x20AC;&#x201D;see  below),  the  number  of  states   with  enabling  legislation  will  increase.

commercial  losses.

Domicile  choice

Capstone  is  one  of  the  countryâ&#x20AC;&#x2122;s  oldest  and  larg-­ est  sponsors  of  â&#x20AC;&#x2DC;intermediate  sizeâ&#x20AC;&#x2122;  captive  insur-­ ance   companies   (property   and   casualty   premi-­ ums  of  less  than  $1.2  million  per  year)  that  insure   middle  market  businesses.  These  insurers  oper-­ ate  under  Section  831(b)  of  the  US  Internal  Rev-­ enue  Code.  Having  formed  more  than  120  cap-­ At  the  same  time,  more  middle  market  com-­ tive   insurance   companies   in   multiple   domiciles   panies   are   looking   to   captives   as   a   risk-­ over   the   past   14   years,   Capstone   understands   planning  alternative.  Long  the  bastion  of  the   the  importance  of  choosing  the  right  domicile. largest   publicly-­held   companies,   captives   are   now   recognised   as   viable   for   the   sub-­ 1RWDOOGRPLFLOHVDUHFUHDWHGHTXDOO\%HFDXVH stantial,   closely   held   business   that   seeks   to   a  captive  as  an  insurer  has  ongoing  exchanges   supplement   current   property   and   casualty   with   its   regulators,   the   chosen   domicile   must   coverages.   For   the   business   owner,   a   cap-­ have   a   staff   able   to   timely   and   competently   tive  provides  the  insureds  with  greater  influ-­ address   ongoing   regulatory   issues.   High   on   ence  over  the  financial  health  of  the  insurer,   Capstoneâ&#x20AC;&#x2122;s   criteria   in   evaluating   a   domicile   for   rather  than  being  at  risk  of  having  coverages   a  particular  captive  is  that  domicileâ&#x20AC;&#x2122;s  expertise,   US   states   with   captive   legislation   now   include   negated  due  to  poor  investment  decisions  by   VWDIÂżQJOHYHOVDQGFRPPLWPHQWWRUHJXODWLQJÂľLQ-­ Alabama,   Arizona,   Arkansas,   Colorado,   Dela-­ conventional  insurers  or  their  traditional  pro-­ termediate  sizeâ&#x20AC;&#x2122;  captives,  as  opposed  to  major   ware,  Florida,  Georgia,  Hawaii,  Illinois,  Kansas,   pensity  to  deny  claims,  especially  significant   conventional   insurers.   Industry   expertise   with  


CaribbeanJurisdictions Non-­US  domiciles Since   the   founding   of   the   Lloydâ&#x20AC;&#x2122;s   of   London   in-­ surance  marketplace  in  1688,  England  has  been   DPRQJWKHPRVWLQĂ&#x20AC;XHQWLDODPRQJWKHZRUOGZLGH reinsurance   markets,   which   it   shares   with   its   overseas   territory,   Bermuda.   Unsurprisingly,   the   principal   â&#x20AC;&#x2DC;offshoreâ&#x20AC;&#x2122;   insurance   domiciles   are   UK   overseas   territories,   with   their   shared   history   of   insurance  expertise.  The  UKâ&#x20AC;&#x2122;s  expertise  in  insur-­ ance  regulation,  including  infrastructure  generally   and  captive  regulation  in  particular,  dwarfs  that  of   86GRPLFLOHVVXFKDV9HUPRQW7KHTXDOLW\DQG expertise  of  offshore  domiciles  is  unmatched  by   their  domestic  brethren.  These  offshore  jurisdic-­ tions  have  thrived  in  providing  their  services  in  an   internationally  competitive  marketplace  and  have   a  much  longer  track  record  in  insurance  regula-­ tion  and  services,  building  on  the  UKâ&#x20AC;&#x2122;s  traditional   expertise  in  the  area.  The  British  overseas  terri-­ tories  continue  to  dominate  the  captive  insurance   markets,  with  Anguilla  specialising  in  captives  for   middle  market  companies. In  contrast,  most  of  the  US  statesâ&#x20AC;&#x2122;  recent  cap-­ WLYHSXVKLVEDVHGRQDÂľIRUSURÂżWÂśPRWLYH)RU example,   Vermont   has   a   gross   receipts   tax   on   premiums.   It   also   extracts   local   jobs   from   its   regulated   captives.   In   what   is   largely   a   ru-­ ral   state,   it   has   created   more   than   1400   jobs   and  millions  of  dollars  of  tax  revenue,  accord-­ ing   to   estimates.   The   professionals   who   hold   these  jobs  typically  have  an  average  pay  that   is   considerably   greater   than   the   average   sal-­ ary   that   is   earned   by   Vermonters.   To   ensure   ORFDO FDSWLYH MRE IRUPDWLRQ WKH VWDWH UHTXLUHV a   Vermont-­based   captive   manager.   It   also   re-­ TXLUHVDWOHDVWRQHERDUGPHPEHUWRSK\VLFDOO\ be   in   Vermont   for   the   annual   board   of   direc-­ tors   meeting,   resulting   in   increased   hotel   oc-­ cupancy  and  related  tourism  revenues  for  the   VWDWH7KHVHUHTXLUHPHQWVDUHDWRGGVZLWKWKH alternative   risk   planning   goals   of   the   middle   market  captive. Other  US  states  have  similar  â&#x20AC;&#x2DC;job  creatingâ&#x20AC;&#x2122;  pro-­ visions   in   their   regulatory   structures.   Montana   DQG 6RXWK &DUROLQD UHTXLUH RQVLWH PHHWLQJV with   the   objective   of   promoting   tourism,   which   has  nothing  to  do  with  the  business  purpose  of   the  captive  and,  in  fact,  drains  its  resources.  To   be  clear,  the  added  burdens  of  domestic  domi-­ FLOHVDUHDWRGGVZLWKHIIHFWLYHDQGHIÂżFLHQWFDS-­ tive   arrangements   and   are   not   usually   seen   in   offshore  jurisdictions. Similarly,  states  hungry  for  tax  revenue  have   focused   on   innovations,   such   as   segregat-­ ed   cells   or   protected   cells,   without   thinking   through   the   regulatory   and   taxation   impli-­ cations   of   them,   leading   to   insureds   being   caught   in   potentially   undesirable   situations.   The  states  have  taken  up  these  programmes   as   the   idea   du   jour   without   thinking   through   the   implications   of   having   unsophisticated   persons   entering   into   â&#x20AC;&#x2DC;babyâ&#x20AC;&#x2122;   captive   arrange-­ ments,   seeing   only   the   opportunities   for   in-­

creased  tax  revenue  and  without  considering   reached   a   similar   conclusion   as   evidenced   by   Anguillaâ&#x20AC;&#x2122;s  growth  over  the  last  few  years  as  the   the  regulatory  implications. domicile  of  choice  for  smaller  captives.  

When  US  domiciles  are  inexperienced   and  understaffed The   economic   crisis   in   the   US   continues   to   adversely   affect   onshore   domiciles.   Having   concluded   that   their   captive   bureaus   are   not   SUR¿WDEOH VRPH VWDWHV KDYH OHIW WKHLU FDSWLYH bureaus   without   leadership,   resulting   in   the   unannounced  decision  to  exit  the  captive  busi-­ ness.  For  those  active  in  the  captive  arena,  they   understand  that  a  captive  is  a  living,  breathing   insurance   company   with   ongoing   issues.   The   captive   needs   to   have   responsive   regulators   in   place   that   can   make   timely   decisions   about   ongoing  issues  in  captive  management.  States   that  are  short  on  staff  have  made  operating  in   WKHVHGRPLFLOHVYHU\GLI¿FXOW

,QFDVHVZKHUHWKHUHDUHWLPHVHQVLWLYHÂżOLQJV there  is  willingness  on  the  part  of  the  Anguillan   Registrar   and   Financial   Services   Commission   (ARFSC)   to   accommodate   reasonable   dead-­ lines  and  to  put  its  onsite  regulators  on  task  to   handle  the  extra  work  to  meet  these  deadlines.   Its  department  of  insurance  is  both  committed   to  and  well  versed  in  the  regulation  of  captives. The  Anguilla   Insurance  Act   and   the   Insurance   Regulations   also   provide   a   sound   regulatory   framework   for   the   operation   of   captives.   An-­ guilla  excels  in  fairly  and  consistently  enforcing   its  captive  framework.  The  ARFSCâ&#x20AC;&#x2122;s  focus  has   been  on  providing  a  secure,  practical  regulatory   framework  for  the  safe  and  sound  operation  of   captive   insurance   companies,   and   not   on   cre-­ DWLQJ DQG PDLQWDLQLQJ D UHJXODWRU\ PLQHÂżHOG strewn  with  bureaucracy.  Its  rules  are  a  balance   between  good  regulation  and  a  recognition  that   FRYHUDJHV DUH EHLQJ ZULWWHQ WR DIÂżOLDWHV RI WKH captiveâ&#x20AC;&#x2122;s  owners.  The  ARFSC  has  responded  in   D WLPHO\ PDQQHU WR UHTXHVWV IRU LQWHUSUHWDWLRQV and  rulings  on  technical  insurance  issues.  

The  newer   US   domiciles   are   to   the   captive   business,   the   more   likely   it   is   that   they   will   have  poorly  developed  regulatory  structures.   There   is   much   uncertainty   as   to   how   issues   would  be  handled  because  there  is  no  history.   In   contrast,   when   considering   the   appropri-­ ate   domicile,   Capstone   evaluates   the   per-­ formance   of   its   regulatory   scheme   operating   %HIRUHIRUPLQJLWVÂżUVWFDSWLYHVLQ$QJXLOODDQG over  past  decades. before  migrating  dozens  of  captives  there,  Cap-­ stone  did  thorough  due  diligence.  We  have  not   been   disappointed   and   today   Capstone   is   a   The  Dodd-­Frank  Act leading  captive  manager  in  Anguilla.  CIT 7KH 'RGG)UDQN$FW KDV OHG WR D ORW RI TXHV-­ tions   and   new   concerns   among   US-­based   captives.   Under   the   NRRA,   having   a   captive   in   Vermont   when   the   insureds   are   located   in,   for   example,   Pennsylvania,   will   open   up   the   captive   arrangement   to   double   taxation.   So,   Vermont   will   tax   the   Vermont-­domiciled   cap-­ tive,  and  Pennsylvania,  the  home  state  of  the   insureds,   will   tax   the   insureds   on   the   same   premiums.  This   is   an   untenable   situation   that   the   NRRA   seems   to   have   created   with   poor-­ ly   chosen   language   while   the   US   domiciles   ZHUH DVOHHS DW WKH VZLWFK <HW FKRRVLQJ WKH insuredâ&#x20AC;&#x2122;s   home   state   creates   another   series   of   concerns.   The   NRRA   has   already   led   to   a   migration  of  captives  out  of  the  traditional  US   domiciles,   such   as   Vermont.   In   contrast,   this   issue   is   a   much   smaller   concern   for  Anguilla   and  other  offshore  domiciles.

Stewart  A  Feldman,  Capstone  Associated  Services

the  insuredsâ&#x20AC;&#x2122;  business  is  also  a  consideration.

In  summary,  the  choice  of  a  captive  domi-­ cile,  like  the  design  of  a  high-­rise  build-­ ingâ&#x20AC;&#x2122;s   foundation,   is   serious   undertak-­ ing,  calling  for  a  disciplined,  up-­front   evaluation.

Choosing  Anguilla From  formation  and  licens-­ ing  to  responsive  regula-­ tory   oversight,   Anguilla   has   met   Capstoneâ&#x20AC;&#x2122;s   expectations.   Oth-­ ers   in   the   cap-­ tive   marketplace   seem   to   have  


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Location: Vermont, Date:  7-­9  August  2012

Location: Indianapolis Date:  1-­3  October  2012

Location: Waikiki Date:  22-­24  October  2012

Location: Grand  Cayman Date:  27-­29  November  2012

The conference   is   a   bustling   hub   of  captive  activity.  VCIA  welcomes   participants  from  all  over  the  world   to   network   with   key   industry   play-­ ers,   enhance   their   captive   educa-­ tion,  and  relax  and  renew  in  beau-­ tiful  Vermont!

The SIIA   National   Conference   &   Expo  is  the  world’s  largest  event  fo-­ cused  exclusively  on  the  self-­insur-­ ance/alternative   risk   transfer   mar-­ ketplace  and  typically  attracts  more   than   1,600   attendees   from   around   the  US  and  from  a  growing  number   of  countries  around  the  world.  

The HCIC  2012  Forum  will  delve  into   opportunities   to   enhance   your   cap-­ tive   and   risk   management   strategies   despite   the   stagnant   economy.   This   conference  will  provide  a  wide  range   of   educational   seminars   and   speak-­ ers   that   will   offer   tremendous   learn-­ ing   and   networking   opportunities.   Sponsorship  forms  and  session  sub-­ mission  forms  may  be  found  at  www.

Plans are   underway   to   provide   an   informative   series   of   panelists   and   VSHDNHUV DQG TXDOLW\ HGXFDWLRQDO content   for   the   captive   owner   and   those   who   are   seeking   information   on  captive  formations  in  the  Cayman   Islands.  There  will  be  memorable  so-­ cial  events  that  will  allow  attendees  to   enjoy  a  taste  of  Grand  Cayman.


Covering all areas of captive insurance


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Industry  appointments Montpelier   Reinsurance,   the   Bermuda   reinsur-­ After  the  exodus,  analysts  at  Peel  Hunt  replaced   ance  subsidiary  of  Montpelier  Re  has  named  Dr   the  â&#x20AC;&#x2DC;buyâ&#x20AC;&#x2122;  rating  with  â&#x20AC;&#x2DC;holdâ&#x20AC;&#x2122;,  raising  its  combined   Gero  Michel  as  head  of  risk  analytics. operating   ratio   forecast   by   1   percent   for   2012   and  2  percent  for  the  following  year.  Peel  Hunt   The   new   position   at   the   company   will   involve   also   lowered   gross   written   premium   expecta-­ enhancing  Montpelierâ&#x20AC;&#x2122;s  risk  analysis  efforts  for   tions  for  2013  and  2014  by  £50  million,  on  the   natural  catastrophe  exposed  businesses  includ-­ DVVXPSWLRQ WKDW LW ZLOO EH GLIÂżFXOW WR KROG RQ WR ing   research,   development,   portfolio   optimisa-­ all   business   written   by   those   underwriters   that   tion  and  other  underwriting  initiatives. have  left. Michel  will  report  directly  to  Christopher  Schaper,   president  of  Montpelier  Reinsurance  in  a  position   effective  from  1  July.  Schaper  said:  â&#x20AC;&#x153;He  brings  a   wealth  of  intellectual  capabilities,  business  expe-­ ULHQFHDQGOHDGHUVKLSTXDOLWLHVWR0RQWSHOLHUDQG I  look  forward  to  working  with  him. â&#x20AC;&#x153;Improving  the  assessment  of  risks  and  translat-­ ing  that  knowledge  into  better  underwriting  deci-­ sions  are  key  challenges  in  our  industry,  and  the   addition  of  Michel  further  strengthens  our  team   in  these  areas.â&#x20AC;? Sidney   Williams   has   joined   captive   manage-­ PHQWÂżUP6WUDWHJLF5LVN6ROXWLRQVDVYLFHFKDLU-­ man  of  its  South  Carolina  operation. Williams   was   the   CEO   and   president   of   BB&T   Assurance   for   nine   years  until  his  retirement   on   At   Strategic   Risk   Solutions,   Williams   will   assist   current   and   pro-­ spective  captive  owners   in   the   Southeast   and   Mid-­Atlantic,   and   pro-­ vide   regulatory   support   in  those  domiciles.

,QVXUDQFH PDQDJHPHQW ÂżUP .DQH KDV UHFUXLW-­ ed  Damian   McNamara   and   Gary   Le   Page   to   senior  European  roles,  as  well  as  opening  two   QHZRIÂżFHVLQ*XHUQVH\DQG0DOWD McNamara  will  be  new  head  of  business  develop-­ ment  in  Europe,  respon-­ sible  for  the  development   of   innovative   captive   in-­ surance  solutions  for  UK   and  European-­based  cli-­ ents,  both  on  a  direct  ba-­ sis  and  through  partner-­ ships   with   independent   insurance   brokers.   Most   recently,   he   worked   for   KPMG   and   prior   to   this   was  at  Investec. Le   Page   has   also   been   named   as   se-­ nior   account   manager   focusing   primarily   on   the   day-­to-­day   man-­ agement   of   the   Kane   *XHUQVH\RIÂżFH Arizonaâ&#x20AC;&#x2122;s   director   of   in-­ surance  Christina  Urias   retired  on  1  July.

7KHÂżUPÂśV0LG6RXWKGLYLVLRQPDQDJHVFDSWLYHV  in   South   Carolina,   Washington,   DC,   and   Dela-­ Former   deputy   director   Gerrie   Marks   will   be   ware,  and  it  is  approved  as  a  captive  manager   the  new  acting  director  of  Arizonaâ&#x20AC;&#x2122;s  department   in  Tennessee. of  insurance.  

Editor:  Mark  Dugdale

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Journalist:  Georgina  Lavers Tel:   +44  (0)  20  3006  2888 Account  manager:  Joe  Farrell

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Published  by  Black  Knight  Media  Ltd Provident  House 6-­20  Burrell  Row Beckenham   BR3  1AT    UK Company  reg:  0719464 Copyright  Š  2012  Black  Knight  Media  Ltd.   All  rights  reserved.  


â&#x20AC;&#x153;I  am  looking  forward  to  continuing  my  work  in   WKH FDSWLYH LQGXVWU\ ZLWK >P\ QHZ ÂżUP@´ VDLG Williams.  â&#x20AC;&#x153;With  the  captive  choices  available,  I   see   strong   growth   opportunities   for   the   use   of   captives  in  the  Mid-­Atlantic  and  Southeast.â&#x20AC;? Chief   executive   Gunter   Saacke,   chief   un-­ derwriting  officer  Will  Schuerch,  and  10  fur-­ ther   underwriters   have   left   the   Novae   Reâ&#x20AC;&#x2122;s   Zurich  operation.

Stephanie  Lefkowski,   chief   analyst   in   Ari-­ zonaâ&#x20AC;&#x2122;s   captive   division,   said:   â&#x20AC;&#x153;It   has   been   a   pleasure   working   with   Marks   in   her   capacity   Borch  will  serve  east  coast  domiciles  and  focus   as  deputy  director.â&#x20AC;?   on   providing   clients   with   innovative   solutions   and   driving   returns   on   investment   for   their   risk   â&#x20AC;&#x153;I  look  forward  to  working  with  her  in  her  new  role   management  resources. and  I  am  sure  the  transition  will  be  seamless.â&#x20AC;?   Before  joining  Beecher  Carlson,  Borch  served   Arizonaâ&#x20AC;&#x2122;s   captive   insurance   division   has   also   as  a  controller  at  The  Sporn  Company,  where   UHFUXLWHGDQHZÂżQDQFLDODQDO\VW he  was  responsible  for  managing  all  accounts,   Rae  Ann  Hughes  is  currently  reviewing  annual   SUHSDULQJ PRQWKO\ ÂżQDQFLDO VWDWHPHQWV DQG DQGTXDUWHUO\ÂżQDQFLDOÂżOLQJVRI$UL]RQDGRPHV-­ managing  the  overall  direction  of  the  account-­ ing  department. tic  captive  insurers.  

It  has  been  reported  that  Saake  and  Schuerch   left   the   Lloydâ&#x20AC;&#x2122;s   reinsurer   in   May,   due   to   re-­ straints   on   independence   and   a   reinsurance   book   which   has   been   lower   than   its   insurance   Specialised  insurance  brokerage  and  risk  man-­ DJHPHQW ÂżUP %HHFKHU &DUOVRQ KDV DSSRLQWHG segment  since  2010. John   Borch   as   an   accounting   manager   in   its   Their   resignations,   along   with   ten   underwriters   national  captive  practice. that  included  heads  of  agriculture,  engineering   and  credit  and  surety,  have  raised  concerns  that   %RUFKZLOOEHEDVHGLQWKHÂżUPÂśV9HUPRQWRIÂżFHLQ the   insurer   cannot   retain   business   written   by   the  US  and  will  report  to  Peter  Kranz,  the  senior   these  divisions. vice  president  of  the  national  captive  practice.


Borch  has  also  worked  as  a  senior  accountant   at  AIG   Insurance   Management   Services   and   as   an   account   manager   at   Marsh   Manage-­ ment  Services. â&#x20AC;&#x153;We   are   excited   to   have   Borch   join   us,â&#x20AC;?   said   Kranz.   â&#x20AC;&#x153;He   will   bring   great   value   to   our   team   and  clients.â&#x20AC;?  CIT

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