Innovation thrives in Bermuda captives space but advisers can do more to educate
There are many healthy examples of innovation taking place in Bermuda’s captive sector – but advisers could do more to ensure captive owners get the most from their captives and dynamically manage the way they are used over time.
They were some of the big talking points at Monday afternoon session at the annual Bermuda Captive Conference, which is taking place at the Fairmont Southampton Hotel on Bermuda this week.
The session, called ‘Risk – the World Over: Emerging LatAm, Asia & Canadian Market Review’, was moderated by Gary Harris, partner, Appleby (Bermuda). It also featured panelists Mark Allitt, managing director, KPMG (Bermuda); Matthew Latham, global head of captive programmes, XL Catlin; Jason Flaxbeard, executive managing director, Beecher Carlson; and Dennis Silva, president, Cedar Consulting.
Silva said that the way in which segregated account or protected cell vehicles are being used is increasingly innovative with more multinational companies using these to create bespoke solutions for different subsidiaries, often with different businesses having different retentions. “Bermuda has really got it right in the way that legislation works,” he said.
Flaxbeard agreed that these are being used in increasingly innovative ways including to better manage some of the risks associated with M&A deals. He also pointed out how transactions can be done between different cells and even sold to a third-party run-off entity.
Allitt from KPMG agreed, noting that it is also relatively easy to convert cells into incorporated vehicles. “This can solve a lot of the problems we see when companies want to do more with those cells,” he said.
Allitt also noted how Bermuda is driving innovation in its desire to lead from the front in the way it embraces new technology. He notes the fact that the Bermuda Monetary Authority (BMA) has created a ‘sandbox’ legislation, which will allow insurers to trial some of the innovations delivered by insurtech breakthroughs within a flexible but closely monitored environment. “I think this will be used extensively by the commercial insurance market, though it remains to be seen how relevant it will be to captives,” he said.
Latham added that blockchain could also offer many benefits for the captives sector. He said the first could be around the way in which information is shared across all elements of the risk chain. “There are some great inefficiencies out there at the moment and blockchain has the potential to make this proves much more efficient,” he said.
He added that the way in which policies are issued and premiums moved around could also be made more efficient through the use of blockchain. Closely linked to blockchain is the development of smart contracts, which also have the potential to help large, complex companies track things like policy updates and changes in a more efficient way as well, Latham said.
But despite these many positives when it comes to innovation, captive owners could be encouraged to do more with their captives and better understand the possibilities – especially when it comes to how excess capital is managed.
Flaxbeard noted that a greater array of options are now available in terms of how excess capital can be managed and how liabilities can even be transferred to third parties. But he noted that some captive owners could be better educated on these.
Allitt noted: “While most captives are formed with fantastic intentions, many are not taking next step. There is often a desire for people to leave it alone and not rock the boat. But where there is excess capital, there is also a cost associated with not leveraging that. We have seen corporates close captives with significant reserves yet they could have simply leveraged things better. We need to bang the drum on what is possible.”
Silva agreed: “Captives should be dynamic; they are often created with a single purpose in mind but they can evolve from this. Advisers need to play more of a role helping on the strategic part of this – they need to give more education.”