Your benefits can be even more beneficial with an effective captive program. Watch the video to learn why, and get in touch to discuss!
In this video, we outline the benefits of a captive and the best organizational candidates for such a structure. For a more detailed conversation, please contact us at firstname.lastname@example.org.
The Spring team is excited to enjoy warmer temperatures at the upcoming Captive Insurance Companies Association (CICA) 2020 International Conference. This will be the firm’s 12th consecutive year being involved in this conference, which brings together hundreds of the industry’s best and brightest to learn from each other.
This year, our Managing Partner, Karin Landry, will be on a panel of captive experts, sharing their experience and guidance for the industry’s future generations. She will be joined by Deyna Feng of Cummins, Inc., Pete Kranz of Beecher Carlson and Michael Scott of Allison & Mosby-Scott, thus offering the perspective of the employer, the consultant, and the attorney. The goal of the session is to give young professionals the chance to ask veterans any questions or discuss challenges in an informal format. The audience will switch between the four panel members at certain intervals, eliciting a “speed dating” sort of environment. CICA has recognized that this aging industry needs to focus on preparing tomorrow’s leaders, as well as attracting new and young talent. This session is a step in the right direction to achieve those goals.
If you are heading to the CICA Conference in Ranco Mirage, CA from March 8th-10th, please check out Karin’s session, “Speed Networking with Young Professionals”, which will run from 3-4 PM on Monday, March 9th.
Spring took home the award for Employee Benefits Specialist of the year, and our Senior Consultant, Prabal Lakhanpal, won the Emerging Talent award for service professionals.
Our team works tirelessly day in and day out to deliver the best, research-driven and innovative service to our clients, with the goal of always producing tangible results. All of our staff is encouraged to participate in educational and industry related events and organizations so they can continue to build their skills and knowledge, and Prabal is a prime example of this development and growth. Always at the forefront of employee benefits and how they intersect with captives, we are constantly thinking outside-the-box to help clients fund competitive benefits packages that makes sense for their organization, its culture and its risk profile. This has been a particularly strong year for us, and we thank Captive Review for the recognition.
What You Should Know
Recently, the Courts ruled that Syzygy Insurance Company (“Syzygy”), a micro captive created by Highland Tank & Manufacturing Co. and its Associates (“HT&A”) did not qualify as an 831(b) micro-captive entity between the years of 2009 and 2011. Federal courts have been especially assertive outlining bad fact patterns for certain captives, as seen in similar case results such as Avrahami v. Commissioner (“Avrahami”) and Reserve Mechanical Corp v. Commissioner (“Reserve”).
Understanding the criteria and results of these court rulings is imperative to ensure that your clients’ captives, or even your own, are appropriately managed and operated.
In this whitepaper, we outline an in-depth analysis of the court case and decision, and provide you with a checklist for ensuring compliance and validity for your captive, no matter its size. Download to learn more about:
- Circular flow of Funds
- Arm’s-Length Contract
- Valid and Binding Policies
and more, so that your captive isn’t the next one getting negative press!
This year the annual Risk Management Society (RIMS) conference is in our neck of the woods, which is very exciting! We are looking forward to playing host and showing colleagues and clients around town.
RIMS is one of the most renowned events in the risk management and insurance spaces, for which we have been proud sponsors and participants for over a decade. This year, we are delighted to not only be a sponsoring exhibitor, but to be speaking as well. Spring’s Senior Actuarial Consultant and Property & Casualty Practice Lead, Peter Johnson, will be leading a session, “IBNR: Your View Versus the Actuary’s” on Tuesday, April 30th from 1:30-2:30PM. He will be joined by Lynn Tenerowicz, Vice President and Chief Risk Officer at Baystate Health. The pair will be doing a deep dive on Incurred But Not Reported (IBNR) claims, covering:
- Term definition
- The differences between your view as the employer and an actuary’s on reporting and calculations
- Different reserving methods and their pros and cons
- IBNR industry trends and benchmarks across different coverage and benefit lines
- Loss development methods
- The effects of claim frequency and severity
- The impact of IBNR on a company’s financials
The presentation will include a case study and plenty of graphics to help paint the picture for you. This session is great for risk and claims managers of all industries, or anyone simply looking to learn more about financials.
We hope you can make it! But if you can’t, please be sure to stop by booth 579 to chat with our team throughout the 3-day event.
As we unpack our suitcases from another successful appearance at the Cayman Captive Forum – our 11th one attended as a company! – I’m also taking the time to unpack my thoughts on the event.
As a sponsor and exhibitor at the conference, which ran from November 27th to the 29th in the Grand Cayman Islands, our team had the pleasure of meeting a range of new faces and familiar colleagues. This is an event that we look forward to each year, and not just because it gives us a break from the cold weather. Drawing over 1,000 attendees, this is a top-notch event catered to captive professionals of all kinds, whether they are seasoned experts or newcomers.
The Cayman Captive Forum is one of many ways that we keep up with trends, priorities and news. So between ice cream socials and poolside receptions, I noted the four most prevalent categories from this year’s educational sessions.
1 – Taxes
No surprise here, as taxes and captives go hand-in-hand. This year, audience members learned about captive considerations for taxable and tax-exempt entities. Further, a group of accountants and lawyers covered US tax reform in detail, highlighting how it all affects captives (i.e. CFC rules, changes to attribution rules, etc.).
2 – Current Events
Naturally, any modern conference would take inspiration from current events, but I noticed quite a few sessions at Cayman that were focused on unrelated topics frequently seen in the headlines.
First, there was “Ridesharing in Healthcare”, which explored the role of transportation in population health management. Then, a panel explained the impact of the “#MeToo” movement on the healthcare industry – addressing harassment, bias and recommended solutions. Thirdly, a team from CHRISTUS Health told audiences of their experiences with Hurricane Harvey and its consequences, arming listeners with suggestions for future catastrophic events. Another session dealt with workplace violence, something we hear about far too often, and, finally, some healthcare specialists provided a defense strategy for an Ebola outbreak.
3 – Blockchain
Blockchain is another hot topic, so it got some spotlight at Cayman this year. In “Blockchain Technology Global Trends”, we learned about blockchain regulations and issues pertinent to insurance and healthcare. Then a panel of accountants discussed the opportunities and challenges presented by blockchain as it relates to insurance.
4 – Cyber
Cyber has been top-of-mind for risk professionals for several years. Unfortunately there has been no magical solution, so the subject remained front-and-center once again this year at Cayman. Charles Kolodkin and Rebecca Cady explained how to use Miscellaneous Professional Liability (MPL) to strategize for cyber risk. Their lessons learned included, “hone the ability to manage the claim” and “work with operational leadership and board”. Another session discussed how to control for vendor cyber risks, highlighting the increased interconnectivity between areas like big data, social media, cloud computing and the Internet of Things (IoT) and the role it all plays on cybersecurity.
All in all, the 2018 Cayman Captive Forum was an event to remember. Myself and my Spring team members enjoyed all of the networking and learning opportunities that the event brought about, and are already looking forward to next year’s!
A recent report from AM Best concluded that, based on their ratings, captive insurance companies outperformed commercial market carriers yet again in 2017. This finding was based on a hard look at balance sheet strength, operating performance, and business profiles of captives as compared to their commercial counterparts.
As long-time captive consultants, we’ve seen a range of clients benefit from a captive structure and are well-versed in their advantages. The AM Best report is a testimony to the positive role captives can play and how they’re able to provide a competitive edge to the organizations using them. Some of the key advantages include:
- Homogeneous Risks
Whether a Single Parent Captive or a Risk Retention Group (RRG), the insureds of a captive are going to have similar risk profiles and diversity. A Single Parent Captive insures the parent company, so all its risks belong to one entity. RRGs are made up of like companies with similar missions and business products/services, such as a group of universities. In both cases, the homogeneity of risk will benefit the captive by establishing a certain level of predictability which helps with the consistency of rates and an unsurprising loss ratio.
- Underwriting Profit/Results
According to AM Best, the Captive Insurance Composite (CIC) experienced a 86.4% five-year combined ratio, while the Commercial Casualty Composite (CCC) had a 99.9% five-year combined ratio. Captives enjoy such underwriting profits for a number of reasons, primarily the fact that risk management, control, prevention and mitigation are all at the heart of the captive’s purpose. Organizations are able to benefit from their own good experience. Captives facilitate transparency and more access to data. This allows organizations to act in a proactive manner and implement risk mitigation and control protocols in an almost real time basis. Comparatively, a fully insured commercial market policy may result in a delayed information transition – most commercial insurance arrangements provide reports a quarter after year-end. In addition, frictional costs are lowered with a captive.
- Return on Investment
A major advantage that organizations with captives have over commercial carriers is the opportunity to recapture part of the premiums. Captives require capital infusion to start and get off the ground. The profits/savings from the insurance carrier accumulate in the captive and can, over time, begin to yield impressive returns on investment. Most feasibility studies use an internal rate of return or a hurdle rate to help visualize potential savings. This makes captives a great alternative for deploying capital and earning a consistently positive return on income, in addition to being able to use it strategically for reinsurance purposes.
Another pro of captives is the ability to evaluate their ROI evaluated against their hurdle rate as their internal rate of return. A company can determine if an investment will give them adequate benefit or savings over a given timeframe based on their rate of return, and then decide if that investment is worth following through with, or if another solution is more economically sound.
These factors combined allow captives a healthy sum of capital and positive balance sheets.
Commercial carriers are sometimes unable to understand the true needs of the insureds and are limited in their offerings. Captives create competitiveness in the market and can compel commercial carriers to offer better terms and costs by virtue of a captive’s existence. In many instances, commercial carriers are threatened by the captive’s ability to take on all the risk and become willing to create quota share arrangements. Captives are a unique, tailored solution for the insured(s) and offer an unbeatable level of customization and very little changes in premiums. They have the ability to insure unique risks and are able to fill in the gaps of coverage where commercial markets are unable to do so.
- Enterprise Risk Management
AM Best defines Enterprise Risk Management (ERM) as, “establishing a risk-aware culture and using tools to consistently identify and manage, as well as measure risk and risk correlations.” An organization that utilizes a captive is likely to have a stronger ERM system in place, when compared to its captiveless peers, since it is partaking in its own experience and thus is more motivated to better manage its risks. In most cases, the captive is a vital cog in the ERM wheel. This close alignment allows for better results for both parties, and a lower total cost of risk for the captive.
Many rated captives have a retention rate of 90% or higher. This is, in part, because policyholders are routinely rewarded through dividend payments from the captive that are significantly higher than any seen in the commercial market. These profits can be used in a multitude of ways to further benefit the captive. For example, policyholders could underwrite additional lines of coverage without the need for more capital, or provide premium holidays on programs, or fund FTEs.
This, combined with the lack of competition means that captives don’t need to shop around for business each year, creating savings in acquisition costs which can then be returned to the captive (e.g. in the form of loss control) to further benefit the insureds.
- Ability to Identify Emerging Risks
A captive’s structure and foundation in ERM gives it an added advantage of foreseeing emerging risks. Typically, all key stakeholders and the entire risk team of an organization will be involved in the captive’s management and activity. Having a strong alignment between the parent company, the captive, the IT team, the risk experts, the actuaries and other main players means that everyone is on the same page. A captive can make long-term assessments while also flagging and resolving issues quickly. There is no fragmentation of knowledge in a captive setup, and all stakeholders have the same interests. In sum, captives allow organizations to be nimble and react to changing market conditions quicker than commercial market carriers.
As AM Best states, captives performed well in 2017, as did RRGs, and it’s projected that success will continue into 2018 and beyond. The US captive market has grown substantially over the past few years, with domiciles like North Carolina and Hawaii experiencing an uptick in captive formation. Further, we’re seeing captives being used more frequently for nontraditional lines of coverage, such as cyber and medical stop-loss, adding to the list of use cases.
Captives are a great tool for insureds to create unique, custom-made solution in partnership with the commercial markets. They facilitate better management of claims – their expenses and adjustments – through accurate estimations.
Lastly, one of a captive’s most important attributes is its flexibility and ability to be swift and proactive, without the typical issues in a commercial insurance relationship.