16 June 2016Bermuda analysis

Captive resistant boards should be reminded they are in good company

The topic of how to convince the directors of a large company of the merits of forming a captive was raised at a session at the Bermuda Captive Conference entitled Insuring Canadian Risks – Understanding the Opportunity. Kim Willey, senior councel, ASW Law and the moderator of the discussion, asked the panellists to share their experiences of overcoming a reticence to consider a captive among board members, which might be rooted in misconceptions or a fear of the perception of companies that use offshore companies. Jason Carne, former managing director KPMG, said that a big part of the argument can be won by simply offering statistics and evidence of the numbers of other large companies that use captives and what percentage of these are located offshore. He pointed out that around 90 percent of S&P 500 companies now use captive insurance programmes and at least half of these are based in offshore domiciles. “You can easily show that you are in good company in this regard,” he said. Carne added: “It is also worth pointing out that CFOs and finance directors have a fiduciary responsibility to enhance returns for their shareholders and if a captive is capable of saving you millions then you have to almost consider it your duty to look at that very seriously.” Lois Gardener, senior vice president, director of risk consulting at Western Canada, Aon Risk Solutions, added that her organisation conducts benchmarking surveys. “There is a lot of information that we can offer that shows that captives are very common and, in some cases, if a company is not using one they are not in the competitive sphere,” she said. Kevin Klippenstein, chief financial officer of Parrish & Heimbecker, a Canadian grain company that uses a captive, said he, when faced with resistance, has sometimes pointed out how hard commercial insurers can be to deal with in terms of paying claims in particular. “A captive becomes a solution to that,” he said. He added that simply having a captive has also helped him negotiate better deals with commercial insurers – on the parts of the portfolio covered externally – and his only regret is that he wishes they had formed it sooner. “It took us around three years to move from concept to it being up and running. I just wish we had moved faster,” he said. Gardener advised companies considering a formation to get their bank account sorted out early as that can often take longer than the licence process. She also advised companies develop a thorough understanding of any fronting that will be needed early on in the process.