Captive growth sparks new opportunities

Michael Bell (pictured), managing director of insurance solutions at technology company SS&C, tells Captive International why the company views the captive insurance market as a growth area.

Tell us about SS&C, your role, and why captives are of interest.

SS&C is a global technology firm and my role is managing director of the insurance solutions business. Captive insurance is interesting—it’s been a tremendously growing market since 2019, with growth in excess of 25 percent. As we see new entrants coming into the market we’re noticing that they have unique operational, accounting, financial and regulatory reporting needs, and we can provide tailored services for new entrants and existing captives that are expanding their current business within the market.

What are some of the primary challenges you are trying to solve with captive managers?

We are seeing more entrants come into the captives market due to recent high inflation coupled with the significant cost increases that companies are experiencing when it comes to purchasing or renewing commercial insurance. 

With higher inflation, captive investment activity is diversifying away from short-term or simple “vanilla” investments into more complex instruments, such as mortgage-backed securities, private credit, bank loans and alternative investments, which offer potential for higher yields and risk-adjusted returns. 

If the captive doesn’t have a modern infrastructure, dealing with such complex investments—data and document management, bespoke deal terms, valuations, accounting and the reporting nuances that come with them, as well as the risk and cash flow modelling on these investments—can be quite challenging.

Put simply, these are operational, accounting and reporting challenges that are not easily managed via spreadsheets and manual processes, but these are areas where SS&C has specialised technology and expertise to help them evolve and institutionalise their processes and operating models.

How do you work with captives’ banking partners and asset managers?

SS&C has seamless existing integrations with more than 300 custodial banks, data vendors, trade order management systems and corporate ledger systems. We have partnerships and connectivity already established that allow us very quickly to operationalise firms that are getting into this space or expanding their existing investment activities. 

We can rapidly onboard new capital structures, asset managers, custodians or legal entities—efficiently accommodating anything changing in the operating model, with minimal lead time and business disruption.

Are you targeting particular domiciles, and do you have presence in traditional captive insurance locations?

We have more than 90 offices around the world, which enables us to accommodate companies on a global basis and offer a “follow-the-sun” model based upon their operational needs, but right now we’re primarily focused on the US, Bermuda and Cayman Islands markets when it comes to captives in particular.

Our service team is able to deal with all types of captive structures—including pure captives, groups, cells and risk retention groups. We’re familiar with and capable of addressing the US and global accounting, financial and regulatory reporting requirements for captives, and we have a deep bench of skilled, knowledgeable service experts who can assist captives and their managers in these areas.

Where is the market currently and what are SS&C’s plans for the future?

“There is an increasing number of areas where we can help support captives to bring their operating model to a new level of scale and efficiency.” Michael Bell, SS&C

It’s been a rapidly growing market, we don’t see any signs of that moderating. As such, captives are taking a closer look at their infrastructure—in terms of their operating models and controls and what they can do from a risk management perspective. As captive investment activities continue to evolve and get more sophisticated, there is an increasing number of areas where we can help support captives to bring their operating model to a new level of scale and efficiency.

There’s a heightened focus for captives and the reinsurance insurance market in general as it pertains to risk management. Higher interest rate volatility and increasing potential default risk adds additional uncertainty around cash flow and liquidity, particularly when it comes to more complex investment portfolios. 

There’s also concern about effectively modelling and managing various risk scenarios, and the associated impacts to a portfolio’s liquidity and expected cash flows.

This can have a real impact on asset/liability management when it comes to a captive’s ability to meet liability claims. 

To that end, in addition to offering captives sophisticated risk modelling tools and analytics, we’re focused on providing a timely, accurate and comprehensive accounting book of record, which ensures they are modelling and managing risk on reliable investment data.

Michael Bell is managing director of insurance solutions at technology company SS&C. He can be contacted at: michael.bell@sscinc.com.