The pace of innovation among captive managers is hotting up, as they each attempt to create new ways of the serving prospective and existing clients...
The pace of innovation among captive managers is hotting up, as they each attempt to create new ways of the serving prospective and existing clients.
AIG is one such captive manager. It has created Grand Isle SAC to give clients flexibility and ease of entry into the captive market, according to Bob Gagliardi.
Grand Isle claims to offer many of the benefits of a captive, including features that allow the insured to retain a certain proportion of the risks and better manage the associated costs—without incurring the full operating costs of a standalone captive. The segregated accounts company (SAC) is to be domiciled in Bermuda.
Although the SAC is something that has been a part of Bermudian law for a while, this is the first time the option has been readily available to clients. AIG has operated through a Vermont-sponsored captive for a number of years.
Gagliardi, who is worldwide director and senior vice president of AIG Insurance Management Services, comments: “The main thought was that the SAC would be attractive for some of our own clients, particularly those located outside of the US. We wanted to provide them with flexibility and ease of entry into the captive market.”
“While the SAC is open to any prospective US clients as well, our first client has turned out to be a Japanese-based parent company.”
“This is the only client we have at this time but there are several other prospects at the moment. The hope is that we can establish a few more cells before the end of the year.”
Gagliardi further elaborated that AIG feels an SAC is ideal for a small to medium-sized company seeking an alternative risk management solution, without the commitment associated with a standalone captive.
Any large company that already owns a captive, but would like to segregate a portion of risk from the existing captive programme, could also benefit from using an SAC.
AIG has claimed that it anticipates the majority of SAC activity to be fronted programmes that are written by the company.
Its decision to establish this SAC in Bermuda is largely due to the attractive regulatory environment, as well as the big presence that AIG already has in the country.
Gagliardi says: “We plan to utilise AIG’s global risk solutions and captive management teams which are already in place in Bermuda. We have had a captive management operation on the islands for years, while global risk solutions is a large fronting operation headed by Brian McNamara. Around 40 people work for AIG across the two divisions who are focused primarily on the captive industry.”
In the long-term, while AIG is hoping to put as much business into the SAC as is possible, the situation is largely dependent on the state of the market and what can be done in other locations such as Latin America, according to Gagliardi.
Gagliardi adds that duplicating the SAC in another domicile is a possibility, but it is also reliant on client demand.
Grand Isle SAC: an overview
Key features and benefits include:
- Quick formation of a segregated account (protected cell) with minimal start-up costs;
- Access to AIG companies for fronting or reinsurance;
- Less time and fewer meetings required from clients;
- Enhanced management and control over losses;
- Potential for sharing in underwriting and investment profits;
- Assets and liabilities of each cell are legally segregated;
- A cell can easily be converted to a standalone captive; and
- Available for virtually any line of business, including general liability, professional liability, workers’ compensation, property,
- warranty, and accident and health.
Potential clients of Grand Isle SAC include:
- Small to medium-sized companies seeking an alternative risk management solution without the costs or commitment associated with a standalone captive;
- Large companies that already own captives, but would like to segregate a portion of risk from existing captive programmes;
- Companies seeking a short-term risk management solution (eg, a transition for captives in run-off or a loss portfolio transfer); or
- Clients that have difficult-to-address risks and the appetite to share in the risk in order to achieve additional capacity and programme flexibility.
