The captive industry: to the barricades!
As 2012 drew to a close, I was asked to review global captive developments over the year. I am writing this on the day that the Mayan calendar says the world will end, so if you’re reading this article, we can start with the good news! On the other hand, it also means that we will have to buckle down and get to work.
2012 was a year of caution. The world economic picture seemed to be: take two cautious steps forward and then one step back. Europefaced ongoing challenges in stabilising its complex economic links. The US held its breath as it conducted a contentious presidential election, while the rest of the world watched Europe, the US, and China muddle their way through the economic difficulties.
Although the number of captive formations in 2012 has not yet been determined, it appears that the growth in the number of captives continues to be steady—if incremental—in most domiciles as the utilisation of captives becomes increasingly mainstream.
"A new group, called the clarity for captive insurers coalition (CCIC), has been formed to seek clarification about the impact of the NRRA 2010."
Within the captive industry, the European captive community continues the intricate dance involved in preparing for Solvency II, even as Solvency II’s implementation date has once again shifted backwards. In the US, the captive industry analysed and debated whether the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA 2010, part of the larger Dodd-Frank financial reform legislation) inadvertently changed the landscape for selecting a captive domicile. There may now be some movement on this issue however, following a recent letter regarding a possible captive exclusion sent by Representative Biggert to the Subcommittee on Insurance of the Committee on Financial Services in the House of Representatives. It remains to be seen what its final implications will be. Other major captive domiciles such as Bermuda and Cayman have had their own political upheavals, though the impact of those political changes on their well-established captive industries remains uncertain.
Much attention in the US focused on the creation of the Federal Insurance Office (FIO) as a clearing house for insurance industry information and whether the FIO would become a de facto federal insurance regulator. It quickly became clear that the FIO was going to rely on the National Association of Insurance Commissioners (NAIC) for industry information and advice. Consequently, the various captive industry trade associations, including the CICA, the National Risk Retention Association (NRRA) and the various captive domicile associations have been devoting more time and resources to tracking the NAIC and advocating on behalf of the captive insurance industry.
Historically, the NAIC has been a hostile environment for nontraditional insurance providers like captive insurers and risk retention groups, despite the participation of strong captive domiciliary states such as Vermont and Delaware. The NAIC has long been dominated by large states such as California, New York, Texas, and Florida, which have been hostile to captives—even as several of them have enacted captive enabling legislation.
A new group, called the Clarity for Captive Insurers Coalition (CCIC), has been formed to seek clarification about the impact of the NRRA 2010. The CCIC’s goal is to correct the ambiguities that have been debated and to clarify that the legislation was not intended to apply to captives. The coalition was initiated by the State of Vermont and the Vermont Captive Insurance Association. CICA has joined, as have many other captive domicile trade associations, so the captive industry seems unified in seeking this clarification.
CICA, the only domicile-neutral trade association within the captive industry, continues to increase its activity in the area of public advocacy through its partnerships with the European Captive Insurance and Reinsurance Owners Association (ECIROA), along with its partnership with captive domicile associations in Arizona, Bermuda, Cayman, Connecticut, Delaware, Hawaii, Kentucky, Missouri, Montana, Nevada, New Jersey, South Carolina, Tennessee, Utah, Vermont and Washington DC.
One thing is certain: captives are here to stay and they will continue to face economic and regulatory challenges. It is a diverse industry in terms of participants and utilisations, but the more we work together, the better off we will be in determining our future.
Dennis Harwick is president of the CICA. He can be contacted at dharwick@CICAworld.com