VCIA
CIT catches up with the VCIA’s president to discuss the latest industry happenings and what we can expect from the association’s annual conference
Has 2013 been a good year for captives so far?
Yes, it has been another good steady year for the industry with business leaders, organisational leaders and risk managers continuing to see the benefit of captives as a solution to their risk exposures.
Vermont is actually on the verge of licensing its 1000th captive sometime this year, which is very exciting for the state.
A lot of US states have implemented captive laws over the past few months. How has Vermont viewed this progression?
In general, the competition has been good and it helps to keep us on our toes and for the industry as a whole it is good to have choices. Another positive is that it continues to spread the word about captives—they are no longer a boutique industry and are now seen as a mainstream risk management tool.
The flip side of this is that newer states may not have the regulatory expertise or the wherewithal to regulate their captives to a high standard. This could lead to problems, to the point where some captives perhaps shouldn’t have been licensed, or are being run incorrectly.
Captives overall, in terms of solvency and the strength of the industry, outperform the traditional insurance industry. That being said, people are always looking for that one fault in the captive insurance industry. A concern that we have is that the industry as a whole may be affected by the misconduct of a minority of inexperienced states.
States have seen how Vermont has successfully created a niche for itself in the industry, and for us it has been terrific for job creation and revenue. Some states try to emulate Vermont’s success to bring revenue into their states. But these states may ‘lose steam’ and that is a concern to us.
How has Vermont managed to hold its position as the most prominent US state for captives for so long?
Vermont has always possessed strong, consistent regulation that is monitored by a very experienced regulatory team, and I personally think that it is the best in the industry. Even our competitors recognise Vermont as the ‘gold standard’ in terms of regulation and support.
We also have consistent support from Vermont’s political leadership at all levels including legislators, governors, and all political parties. The solid support that Vermont possesses is certainly recognised by the industry, and from that we’ve amassed a world centre of excellence from the service providers that we attract here in Burlington. In return, these service providers have excellent track records and create strong relationships with our state’s regulators. And while they may have many captives based in other states, their management team, legal team and other service providers are often based in Vermont.
How do you think Vermont will fare throughout the rest of 2013? Are there any prospective challenges facing the industry?
Even with the new competition that we now face from other states, Vermont will still have a good year. As I mentioned above, we will be celebrating the licensing of our 1000th captive this year, which will be terrific.
There are two types of challenges that come to my mind. First, there are the challenges that this industry thrives on such as emerging risks, cyber security, supply chain risks and healthcare. And while these are challenging issues, these are the kind of risks that our industry loves because captives are flexible and are able to create innovative policies that can meet the needs of the risk managers in those areas, which is very exciting.
Second, the continual regulatory challenge is—whether intentionally or unintentionally—a persistent problem for the captive insurance industry. For example, the confusion over whether the Non-admitted and Reinsurance Reform Act was meant to be applicable to captive insurance companies caused a great deal of angst throughout the industry.
Another instance was the intentional flogging of captives by politicians looking to score political points, and I think the State of New York’s report on the life insurance reserves of captives is a good example.
Has the shadow insurance enquiry in New York affected the industry?
I don’t think that it has actually, but it is maddening. It’s frustrating in one way because they’ve thrown the whole captive insurance industry into this mix when really it is a specialised insurance tool, and the report doesn’t match the facts.
That being said, I haven’t witnessed anyone in the industry voicing concerns over the way we do business and how we form captives. As a matter of fact, Vermont has still seen these special purpose vehicles being formed.
When New York issues a report people do sit up and take notice, but thankfully it hasn’t had an overall effect on the industry.
Vermont recently made amendments to its captive legislation. Have you seen any improvements so far?
We’ve already seen interest in some of the areas where we changed or modified our laws. For instance, we created a separate account that allows a captive to establish one or more separate accounts within the captive, so that they can isolate risks that may affect some of the participants but not all of them, so it gives the captive a little bit more flexibility.
Another amendment that we made was to the legislation surrounding protected cells in a sponsored captive. We have made some specific changes to clarify this legislation, which has also been very well received by the industry.
What can we expect from this year’s VCIA conference—are there any particular panel discussions that attendees should look out for?
This year’s VCIA conference is set to be bigger and better than ever with extra seminars and 80 panellists, of which almost 40 percent are captive owners. I think that having owners share their case studies and personal experiences is a big factor as to why people love to come to our conference. They get to hear first-hand from practitioners and the owners themselves.
Frank Nutter, president of the Reinsurance Association of America, will be the keynote speaker at this year’s conference. Reinsurance is such an important tool for the captive industry, and the changes to the industry have been remarkable in the last couple of years, so people are very excited to hear what he has to say.
We also have an enterprise risk management panel—to understand the total risks that an organisation has as it becomes more and more a part of the overall management of an organisation, which I think will be very helpful for attendees.
The conference will also be a great opportunity for new captive domiciles to come and learn more about the industry, as we will have regulators and practitioners from a number of the new domiciles that have recently enacted captive legislation.
