As the captive insurance world returns to normal, many of us look forward to meeting again in person, over a well poured pint or a good meal to discuss business and banter about life and this wonderful business we work in.
One of life’s pleasures is that this banter often leads to some lively discussion. On one occasion, I was present when an argument was settled through arm-wrestling. Is there a better way?
In 1954, Sir Hugh Beaver, managing director of Guinness Brewery, had the idea for a promotion based on settling pub arguments with a book he commissioned: “The Guinness Book of World Records”. Do we need such a book for captive insurance?
Captives have a long history. The next time you’re at a conference, look around. Some of us have been here for a very long time. Who formed the first captive? Where was the first captive conference held? Who was the first captive manager? Who is the sexiest man in captives? Some may say “who cares?”. I believe Captive International readers do. I can’t think of a better source for the latest captive insurance news. Maybe they should write a book.
The first captives
Fred Reiss is often referred to as the father of captive insurance. He helped one of his clients, Youngstown Sheet and Tube, form Steel Insurance Company in 1953. Youngstown owned its own captive mines—captive, because all the ore from the mines was used exclusively for the company mills. Steel Insurance was formed to write insurance exclusively for those mines, thus the name “captive” insurance came about. Was Steel Insurance the first captive?
Lufthansa’s captive, Delvag, was formed in Germany almost 30 years earlier—in 1924. Lufthansa has a strong insurance heritage. Its main captive, Delvag Luftfahrtversicherungs, was an early group captive established by an association of German aircraft manufacturers. Lufthansa itself was created many years later by the merger of this association into a single operation. During the 1960s, the company decided to expand the captive to write third-party business for other airlines. It later expanded its core aviation and marine cargo business into employee benefits for airline employees. Is Delvag the oldest? Was the first captive a group captive? We need a book.
The coffee houses of London are often credited with the genesis of the first insurance policies. Could it have been the beer halls of Germany? I found a collection of 282 rules/standards for commercial interaction that also address early insurance. Did anyone guess Hammurabi’s Code from 1750 BC?
Mediterranean sailing merchants who received a loan for their cargo would pay an additional sum (premium) in exchange for a lender's guarantee to cancel the loan should the shipment be stolen or lost. This concept of insurance can also be found much earlier in third century BC Hindu scripture.
“Is Delvag the oldest? Was the first captive a group captive? We need a book.”
The development of captive regulation
Getting back to Reiss, in 1958 he formed American Risk Management (ARM) in Bermuda. I believe ARM was the first independent captive manager. ARM became International Risk Management. IRM became IRM Group. IRMG was purchased by Aon in 2001. Aon is one of the largest captive managers today.
Many know the Captive Insurance Companies Association (CICA) from its marketing as the “only domicile-neutral captive insurance association”. I’m not sure that is still true. It does however remain neutral and is independently run. Independence is important.
I think CICA was the first captive insurance association, being formed in 1972. The first member meeting was held in a member’s living room, I believe in Arizona. The first Captive Conference was held in Bermuda in 1977, and I think we now have more annual captive conferences than attendees at either the original CICA member meeting or the first Bermuda captive conference. Which leads to the question: when was captive sponsorship invented?
Captive insurance conferences are on the rise as the number of captive domiciles continues to expand. Industry sources agree that the captive domiciles with the greatest number of captives are Bermuda, Cayman, and Vermont. In the US, most sources agree that 28 states have one or more active captives (29 including Washington, DC). One source lists 39, including Puerto Rico and the US Virgin Islands. Florida and West Virginia have captive insurance laws but no active captives.
Did you know Tennessee had a captive law before Vermont? Tennessee enacted captive legislation in 1978, one of the first states to do so. Vermont’s law passed in 1981. Florida passed a captive law in 1982 and revised it in 2012. Florida still does not have an active captive. I thought sunshine was good for captives.
This year marks the 30th anniversary of the Product Liability Risk Retention Act of 1981. This means the first risk retention groups (RRGs) were formed 30 years ago. Based on the 1981 law’s success, it was expanded into the Liability Risk Retention Act of 1986. All RRGs are domiciled in the US: true or false?
Maybe that’s too easy. What if I told you language in the 1986 act stated that RRGs chartered or licensed under the laws of Bermuda or the Cayman Islands that have met the capitalisation requirements of one state prior to January 1, 1985, can continue to operate as RRGs? These are the only offshore formations permitted.
Your first thought was correct. All RRGs are currently US-domiciled.
Who is the sexiest man in captives? I never had the pleasure, but I’m told Reiss was quite handsome and had a shocking head of white hair. We are not a shy group. While researching this article, I took a completely unscientific poll asking male colleagues, friends, and business associates, who was the sexiest man in captives.
The most common answer I received was “I am.” Who am I to argue? I am the sexiest man in captives.
Greg Lang is the founder of the Reinsurance and Insurance Network. He can be contacted at: firstname.lastname@example.org
Fred Reiss, Captive Insurance, Steel Insurance, Delvag, American Risk Management (ARM), North America