Frank Nutter, who leads the Reinsurance Association of America, was the keynote speaker at the Vermont Captive Insurance Association’s (VCIA’s) annual conference in Burlington.
Frank Nutter, who leads the Reinsurance Association of America, was the keynote speaker at the Vermont Captive Insurance Association’s (VCIA’s) annual conference in Burlington.
He focused his keynote speech on future trends that could affect captive, reinsurance and traditional insurance companies, and said that there is no “game changing” natural catastrophe on the horizon for reinsurers.
Reinsurers have dealt with severe natural catastrophes, like they did in 2011 when devastating earthquakes and weather-related catastrophes struck countries including New Zealand and Japan, with relative ease, according to Nutter.
The 2011 natural catastrophes—the cost of which was approximately $380 billion, according to Munich Re—registered as “barely a blip” on reinsurers’ balance sheets.
Reinsurers’ enterprise risk management programmes and sensible pricing, among others, are why they can deal with such extreme losses, said Nutter, who concluded that a “game changing” natural catastrophe in the future is unlikely.
He added that a devastating terrorist attack in the future could affect reinsurers, although that too would probably not be “game changing”.
Nutter also warned that the Terrorism Risk Insurance Act (TRIA), signed into US law in 2002 following 9/11, is set to expire at the end of 2014 and will “no longer be of benefit to captive insurers”.
US Congress is considering changing the act ahead of it expiring and plans to hold a hearing on the subject in September.
Nutter urged captives and their service providers to attend or provide comments, but he added that “[US Congress doesn’t] want to hear that it should be extended in its current form”.
In a press meeting at the conference, it was revealed that Missouri and California are rumoured to be the only US states collecting taxes under the Non-Admitted and Reinsurance Reform Act (NRRA).
David Provost of the Vermont Department of Financial Regulation, Daniel Towle of the state’s Agency of Commerce and Community Development and Richard Smith of the VCIA discussed the much criticised provision of the US Dodd-Frank Act with gathered journalists.
The NRRA should only affect surplus lines and reinsurance, say its opponents, but some states have or are planning to interpret it differently.
If the NRRA is applied to captives, states will levy self-procurement taxes on 100 percent of the premiums paid to a captive by a ‘home-state’ policyholder that has material risks located outside of that state.
But captive advocates as well as two of Dodd-Frank’s original architects have said explicitly that it should not apply to captives, and according to Towle and Provost, states are stepping back, with only Missouri and California thought to be collecting taxes from captives under the NRRA.
A legislative fix to the NRRA problem would be “ideal”, said Towle, but it is unlikely that this will happen without pressure from the captive insurance industry.
Vermont has licensed 13 captives so far this year, Provost went on to say, with the state looking to license its 1000th before the end of 2013.
Towle said: “I’m very optimistic about what kind of year this is going to be.”
The Vermont trio also commented on Benjamin Lawsky’s call for a national moratorium on captive insurance transactions from the National Association of Insurance Commissioners (NAIC).
The New York State Department of Financial Services’s superintendent issued a report in June blasting New York-based insurers for hiding at least $48 billion of ‘shadow insurance’ transactions in captive and reinsurance entities.
Provost said that “the entire NAIC was perturbed at Lawsky’s report and comments”, partly because it is the association’s job to look at the issues that the financial services superintendent examined in his report.
Smith added: “[Shadow insurance is] a political ball he wants to bat around. [Lawsky’s comments were] irresponsible—that’s why it’s maddening.”
Healthcare was also under the microscope. One panel of experts said that risk managers need to “think outside the box” if they are going to design and implement effective return to work programmes that will keep down the cost of workers’ compensation insurance.
Marilyn Blake of National Telecom Corporation, which is a part of an association captive domiciled in Vermont, and Mark Denevich of Verizon Communications were among the panellists discussing the management of medical costs.
Return to work programmes offer captives multiple benefits, including boosting the employee’s morale and lowering the cost of workers’ compensation insurance, but risk managers must “think outside the box” if they are going to do them correctly.
Employees will often not have the skills required to conduct work they have no experience of, while managers can be reluctant to oversee staff who are not working in their normal, or to their full, capacity.
Denesvich said that “the real challenge is educating managers” because they often do not want employees on modified duty, but return to work programmes require “a multi-pronged approach” targeting both employee and manager to be successful.
