As Vermont was named the largest captive domicile globally in 2022, it has developed into a hub for alternative risk financing and insurance innovations. The Vermont Captive Insurance Association (VCIA) recently hosted its 2024 Annual Conference, a beacon in the captive insurance industry. This year’s conference, held in the heart of Vermont (Burlington), offered a dynamic platform for industry professionals to delve into the evolving landscape of captive insurance. From exploring the fundamentals of captive formation to addressing the pressing challenges posed by emerging technologies and regulatory changes, the conference provided invaluable insights and strategies. Attendees had the opportunity to engage with thought leaders, share best practices, and discover innovative solutions that will shape the future of the industry.

1) Captive Formation and Feasibility

Since Vermont is the most popular domicile globally, VCIA provides a great avenue to help first-time employers explore potential captive endeavors. Understanding the basics of captive formation and testing for feasibility is essential for anyone looking to establish or manage a captive insurance company. Here are some related sessions that caught my eye:

-The opening session, “Captive Immersion: Feeling Puzzled? Let’s Piece It Together,” brought together various stakeholders, including an attorney, underwriter, actuary, consultant and a state official to give piece-by-piece instructions on entering the captive industry.

– The presentation, “The Economic Landscape & Your Captive’s Investment Portfolio,” reviewed the current state of the economy and macroeconomic factors that may influence investment gains in a captive.

2) Emerging Technologies and Innovation

As the risk landscape evolves rapidly, captives must adapt to emerging tools and technologies. Addressing emerging risks such as cyber threats and leveraging innovations like AI and data analytics are vital for maintaining relevance and effectiveness in risk management, ensuring captives can proactively manage and mitigate modern challenges. These presentations spotlighted the need for alternative solutions to address emerging (and at times unforeseen) risks:

3) Regulatory and Compliance Updates

Navigating the complex regulatory environment and staying updated on captive taxation and oversight changes are crucial for compliance and strategic planning. It is essential that captive managers and owners are informed about regulatory requirements and can adapt their practices to remain in good standing and avoid potential legal pitfalls. Some insightful sessions include:

– Our VP, TJ Scherer, teamed up with the State of VT’s Dan Patterson in an open discussion group to chat about “Upcoming Changes in Regulation Oversight” and what captive owners in VT should keep their eyes out for.

– Four tax experts convened to discuss “Captive Taxation: What’s New & What’s Next.” They reviewed recent IRS, federal and state updates and discussed how companies can best prepare for an IRS audit.

4) Passing the Torch

Energizing new leaders and providing growth opportunities for newcomers are essential for the long-term sustainability of the captive insurance industry. By fostering new leadership, organizations can drive future success and address the ongoing challenge of talent shortages. These topics focused on the importance of developing talent to ensure that fresh perspectives and innovative ideas are woven into the industry:

– State of VT’s Chief Examiner, Heidi Rabtoy’s “Discussion Group: Attracting & Energizing New Leaders” spotlighted the current talent shortage in the insurance space, and tips to attract and retain next-generation industry leaders.

– One of my favorite parts of VCIA is the Newcomers’ Orientation; ensuring first-time attendees are educated and feel welcome is essential to the industry’s future success.

The enthusiasm and forward-thinking discussions from this year’s conference left a lasting impact on the captive insurance landscape. The conference highlighted the importance of understanding the fundamentals of captive formation and staying ahead of emerging risks, underscoring the critical need for compliance amidst shifting regulations. Moreover, the focus on cultivating new leadership promises a vibrant future for the industry. By harnessing the knowledge and connections gained at VCIA, risk professionals are well-equipped to navigate the complexities ahead and drive continued success in the world of captive insurance.

In a recent podcast from the International Risk Management Institute (IRMI), or Chief P&C Actuary, Peter Johnson gives an inside view into the actuarial methodologies that go into calculating loss development patterns and optimizing risk management strategies across long-tail lines. You can find the full podcast episode here.

Spring has won Captive Review’s US Awards the top Captive Consultant of the Year. You can find the full list here.

Our captive team joined the Global Captive Podcast to record an episode reviewing Spring’s recent efforts in securing tentative authorization for a client from the Department of Labour regarding an ERISA exception for a pension risk transfer. You can find the full podcast episode here.

Spring recently published an article on Captive.com illustrating 7 ways captive insurance can benefit organizations. Check out the full article here.

One of the most exciting attributes of captive insurance is that every program looks different. There is so much variety and a wide range of ways to structure coverage and utilize surplus. I have been talking with captive owners representing various industries, organizational sizes, and stages of captive maturation to get their unique stories and understand how they are putting their captive to work for their specific risks. Indeed, no two stories have been the same.

In a recent interview, I sat down with Karen Hsi, Executive Director, Captive Programs at University of California Office of the President, and one of the sharpest minds of young captive talent. The University of California (UC) did not need to obtain Department of Labor (DOL) approval for their captive programs, making the process simpler!

Q: What benefits do you currently have within your captive, and why did you choose the captive path?

A: On the employee benefits side, we have voluntary benefits – accident, critical illness, and hospital indemnity – in our cell captive. This program has been in effect since the start of 2020 and uses a fronting carrier, and as of this year (start of 2024), it is 100% seeded to the cell captive.

We brought these products into the captive because we wanted to customize offerings and add some bells and whistles for employees at a better price. We used a cell captive so that we wouldn’t jeopardize the tax status of our single parent captive. Our original goal with this strategy was not to make money but  break-even while primarily to be able to offer better benefits.

Over the course of time we have been able to build a stable program, and after shifting away from a broker structure so that commissions and other costs are stripped out. As we establish these financial efficiencies, we want to keep building upon the program either by reducing employee costs or by further enhancing or customizing offerings. For example, one unique benefit that we were able to add with our surplus is a mammography offering within critical illness. We found that utilization was high, so we are confident it adds value to employees. Another policy we were able to add into the supplemental health program was a COVID-19 rider, which had a cash incentive for employees to proactively get tested for the virus. We were able to put this in place quickly and think we would have had a hard time doing so without the captive.

Overall, we have seen about 20% savings with this program and as things stabilize, we hope to lower rates further for employees.

Q: Are there any other benefits UC has in a captive?

A: We write life insurance – employer and employee paid – in a separate cell captive because it is large enough for its own cell. The life cell captive also launched in 2019 and is doing well, with approximately $16.3M in accumulated earnings since inception. During the pandemic, we had a fair amount of turnover, so we used the success of the captive to boost our life insurance policy as a tactic for succession planning and business continuity.

We hope to someday to move disability into the captive, but the timing hasn’t been right yet. We want to better manage the risk first so that the board is more amenable to bringing it into the captive.

Q: Any other surprises?

A: I think in the beginning it was a mindset and relationship change when we shifted things with the carrier to move to a fronting company. They now have a seat at the table and we have a longstanding relationship.

Q: Anything interesting on the horizon?

A: We are looking into the potential of long-term care insurance in a captive. There also might be an opportunity to rent out a cell captive to one of our sister/affiliate organizations (e.g., California State entities), where they have their own cell and voice and where we can provide resources. I think this might be a beneficial move and would be a valuable way to collaborate.

No matter what the future brings, I know that we are not done yet (with growing our captive programs), and we’re excited to see what else we can do. I appreciated the time Karen spent in chatting with me and will be paying close attention to these exciting developments and opportunities to expand their captive. If you’re looking for expert advice to assess feasibility of additional benefits in your captive, feel free to get in touch with our team.

The United States Department of Labor (DOL) has tentatively authorized an Employee Retirement Income Security Act (ERISA) exemption regarding pension plan risk transfer to a captive. This healthcare network is the first organization in history to receive ERISA approval to transfer pension risk in a captive. This is groundbreaking news, as it opens the doors for plan sponsors to better manage their risk related to defined benefit pension plans programs. In short, using captive insurance companies rather than traditional insurers alone gives plan sponsors the opportunity to fund their pension risk more cost effectively.

Their employees engage in groundbreaking cancer research and provide lifesaving care for patients. The employer engaged with Spring, to help design and implement this unique program for its retirement benefits. This included conducting actuarial analyses, navigating vendor and partner avenues, structuring transaction and direct contact with the DOL to work through the exemption process. Once approved, the employer is anticipated to receive $126.4 million in financial benefits from the DOL. As part of the terms of the exemption, the employer will be providing a one-time cost of living increase to the monthly retirement benefit to all plan participants and beneficiaries.

This is a groundbreaking next step in the evolution of risk management programs and set the stage for many other employers who are trying to structure a better program for their employees.

We’re excited to announce that Spring has been shortlisted for top Actuarial Firm and Captive Consultant in this Captive Review’s 2024 US Awards. Check out the full list of nominees here.

Our Managing Partner, Karin Landry has been featured among the top Influential Women in Captive Insurance by Captive International. You can find the full announcement here.