The end of the beginning

“Once more unto the breach, dear friends, once more … when the blast of war blows in our ears, then imitate the action of the tiger; stiffen the sinews, conjure up the blood, disguise fair nature with hard favoured rage.”

Shakespeare’s famous lines are a rallying call by Henry V to his English troops to defeat his French enemy. It seems to me that now is the perfect time to raise a similar rallying call to the captive industry globally to get its act together and form an effective, united and coordinated response to the many challenges and threats it faces. I do not have the space to list the various fiscal, political and regulatory initiatives underway globally and I suspect readers will have little appetite to trawl through another inventory of threats. But I am not alone in recommending such a course of action—captive practitioners and media partners are also making similar pleas.

So why am I making this call to arms and why hasn’t the industry already coalesced into a unified front? To date, threats to captives have been addressed at a domicile level or by forming ad hoc alliances when the threat has been regional and/or common to several domiciles. This tactic is unlikely to remain effective as threats become global and their source supranational.

So are there any candidates to assume this global coordinating role from among existing captive associations? I’ve researched the history of the various bodies representing the captive industry across many domiciles and regions and they seem to follow a similar growth pattern. The zoologist in me naturally looks for analogies in the animal kingdom and I cannot but cite the theory of convergent evolution. This is the independent evolution of similar traits, where several species respond to similar challenges in a similar way. An obvious example is flight, which has evolved in birds, insects and bats, albeit with different wing structures.

Figure 1 below shows high similarities between the associations’ key features. Although Vermont has been the most progressive with respect to membership and objectives, associations are, on the whole, inward looking and seek to protect that domicile’s position. There is only passing reference to international development or liaison.

Figure 1 also suggests that, other than Vermont, the domicile associations’ titles make reference to manager or management, which suggests an emphasis on the practical aspects rather than international vision. Finally, it shows that captive managers have significant directorial governance influence.

My conclusion from Figure 1 is it is unlikely that any of the domicile associations will have the drive, mandate and strategic imperative to rise above parochial matters. This is not a criticism.

Figure 1: Captive associations assemble

These organisations perform an excellent job representing their members’ interests but lack the mandate to assume the needed broader international strategy setting and coordination role.

But aren’t there organisations that represent captive owners and are domicile neutral? Of course, and Captive Insurance Companies Association (CICA) and European Captive Insurance and Reinsurance Owners Association (ECIROA) immediately come to mind. Both represent regions: CICA is predominantly US-centric and ECIROA, as the name indicates, is Europe-based.

My guess is, in due course, there will be an equivalent organisation in Asia as the captive industry in that region flourishes. Do any of these captive owner-led organisations have the appetite to take on a global unifying role?

There are some positive signs: both are free of jurisdictional or commercial ties since they are not linked with a domicile or government; both have a board of directors with a majority of captive owner representatives; CICA has a European representative on its board of directors and references its role as “an advocate around the world and a valuable connection to the captive industry”; and ECIROA talks of “a forum to exchange experiences across borders” (but I wonder if this relates to pan-European and what impact will Brexit have?), and runs, in association with CICA, a biennial conference in Luxembourg.

So some encouragement, although the last time I raised the issue of CICA assuming this global role, I was informed it has been looked at before and rejected, and that it would be too expensive. Having said that, I imagine CICA’s agenda has been pretty full.

There is also a perception that ECIROA was formed on a single-issue mandate—Solvency II. Now that this is enacted, does the association have the motivation to take on a global coordination remit? ECIROA has recently issued papers on base erosion and profit shifting (BEPS) and captives, which suggests this may become its next project.

CICA is currently recruiting a new leader to replace the departing president, Dennis Harwick, and I see this as a great opportunity to put global strategy, coordination and promotion into the job description to attract someone who has the vision and the appetite for the challenge to bring the industry together under one global umbrella organisation. It would be a massive task, but what a legacy to leave.

Convincing the various captive stakeholders as to the value of such an enterprise, obtaining commitment and securing a budget will require special leadership, but it can be achieved. I imagine a number of multinational companies with a significant investment in, and commitment to, their captives would be willing to support, and make resources available to, such a venture.

Speaking to Harwick, he advises that CICA investigated such a role and had begun a recruitment process for an advocacy specialist, but the venture collapsed when captive owners and managers were asked to make an investment.

Their response was, in principle, support, but they showed a reluctance to put their heads above the parapet and fund, at that time, a non-specific item. Today’s circumstances make those defences short sighted and inappropriate.

You may be thinking that couldn’t the risk management community pick up this mantle? Risk management associations such as the Risk Management Society (RIMS), Federation of European Risk Management Associations (FERMA) and Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC) obviously have an interest in captives but it is not, and never will be, their raison d’etre.

However, I suspect they would be supportive of any integrated global captive industry initiative. But this initiative will need to be driven by the captive industry itself.

To me, the best route to success is to look to a captive owners’ association to step up and assume the role of global coordinator of the captive industry. Of the candidates, CICA appears to demonstrate the most potential and is going through a period of leadership change so this mandate could be included in the association’s vision, governance and strategic planning.

It is up to CICA’s membership to step up to the plate and support such an altruistic initiative, and other captive associations to agree to CICA taking the lead.

I do not see it as feasible to add an additional layer to the captive association hierarchy through the creation of a new global captive association. This would create duplication of effort and cost and I suspect would not be fully supported by the various captive communities worldwide.

Better to start with CICA, expand its objectives and establish a governance framework that would allow captive stakeholders worldwide to be able to contribute to, and be part of, the new organisation.

The committee system that already operates successfully could be expanded and further representatives from domicile associations invited to participate. In terms of governance and optics, I would suggest the board of directors continue to contain a majority of captive owner representatives.

These are just some initial thoughts of mine. I’m sure there are many others with better ideas and the ability to convert these into deliverables. The purpose of this article is to give the debate some momentum and to urge key stakeholders to engage. Delay could significantly adversely affect captive business in all domiciles worldwide.

As Sir Winston Churchill said: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
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