Could you describe the current captive insurance industry in South Carolina and, coming to the end of the year, are you experiencing a lot of activity in terms of captive formations?
While we have seen our share of new captive applications this year, the overall level of new formation activity has not been as robust as it was in 2014 and 2015. Things have certainly picked up in the last few weeks, however, to the point where every three to four days we receive a call or email from a captive manager about a new application, which the manager hopes to complete in time for us to perform our due diligence and issue a licence and approval to write by the end of the year. The fact that these calls are becoming more frequent is indicative of the usual end-of-year pressure that people feel about projects they’ve been thinking about for some time and which are geared to a calendar year renewal cycle. Captive owners and their advisors realise that if they want a captive that is fully licensed and authorised to do business by 1 January, it’s time to get serious about completing the application and getting it into our hands so that we can do our job properly and conscientiously, as well as expeditiously.
When is the cut-off for the applications to be ready for the 1 January?
We haven’t established one for this year. Once or twice in the past four years we let people know around mid- to late-November that we were establishing a soft cut-off date for applications for which a 1 January or prior license date is desired. In those instances, we have informed the captive community that, although we would endeavour to do our very best to process all applications within the timeframes requested, we could not provide any firm assurance that we could complete our application review in time to issue a licence by 31 December, unless a full and complete application was in our hands by the 5 or 6 December at the latest.
We will once again defer a decision about this until around the last week of November, at which time we will take stock of what is in our pipeline, including the expectations of the prospective captive owners and managers regarding a license date, and make a determination as to what message we need to communicate to the captive community.
Sometimes we receive applications that are incomplete, or which raise issues, that need to be clarified before we can move forward. We also refer relevant portions of every application to outside actuaries for an independent review. These additional steps can introduce a degree of uncertainty into the timing of the process on our end, and we want people to be aware of this, as we wish to avoid giving assurances that particular circumstances might prevent us from being able to meet. Fortunately, we have been able to get very supportive and quick turnaround from the outside actuaries that we engage for these reviews, and I anticipate that will be the case again in the closing weeks of this year.
What’s the leading sector in terms of figures for captives?
The parent companies of South Carolina captives come from a very broad range of industries. With that kind of range and diversity, there is no disproportionate concentration in one or two industries that would unbalance the overall portfolio. We see everything from Fortune 100 energy companies and manufacturers to large medical practice and hospital groups, to property management and development companies, to contractors, retailers, big transportation companies, to major financial institutions and more. This means that we’re not dependent on one or two industrial sectors and the types of exposures that characterise those particular industries. Nor are we dependent upon a continuing stream of applications from small privately-held companies looking to form captives that can take advantage of the tax election under Section 831(b) of the US Tax Code. While we do have some 831(b) captives in our book, they comprise a distinct minority of our captive licensees, and certainly do not define who we are as a domicile.
Have there been any new regulatory updates in South Carolina?
In collaboration with the South Carolina Captive Insurance Association, as well as just within the captive division of the South Carolina Department of Insurance, we have a couple of exciting new initiatives in the works, but it is a bit premature for me to describe them even in general terms, much less to talk about them in specific detail.
I’m hoping that once we get well into Q1 2018, we will have made sufficient progress on these initiatives that we can pull the curtain back and share some details about what I’m referring to, but I can tell you that they will be very positive and exciting developments for this domicile. We hope and expect that those initiatives will bear fruit for us in H1 2018, but the time is not ripe for me to get into any details, so stay tuned.
With new developments in the pipeline, do you hear a lot of feedback from the association, and does that help you work towards those developments?
Yes, as a matter of fact we have quarterly update meetings with the leadership of the state captive association (SCCIA), the most recent of which was at the beginning of November. These give us the opportunity to identify the initiatives we are pursuing, either separately or together, and to look ahead to things we need to put some energy and effort behind. In other words, it helps us prioritise and align our efforts and deploy our respective resources to best effect. It’s a very healthy and necessary process, as between the association and the department, we share information readily with each other, and are very transparent about our plans and activities, while at the same time we in the department continue to adhere strictly to our confidentiality obligations and other overarching duties as solvency regulators.