Captives’ roles set to grow, says industry expert

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Bermuda’s captive insurance companies are likely to see expansion as their parent corporations use them to deal with emerging risks, according to captive industry expert Andy Barile.

But as the captives take on greater and more complicated risks, captive managers and directors will need more expertise to avoid running into problems in an increasingly sophisticated environment, the veteran expert added.

US-based Mr Barile, who has just celebrated 45 years in the insurance industry and advises companies on captive formation and management, says competition among domiciles is heating up as US states desperately seek revenue.

“When corporations are cash-rich like they are now, they look at what captives can do for them and view them as a profit centre,” Mr Barile said in an interview with The Royal Gazette.

“CFOs are getting their risk managers to look at areas like cyber liability. Many are also looking at ‘ObamaCare’ and at employment benefits insurance solutions.”

Captive insurers provide insurance for their parent corporations. At the end of last year, there were 862 operating captives registered in Bermuda, making it the world’s leading captive domicile.

Mr Barile said that expansion of the size and range of risks they deal with will require captive management companies like to boost their human resources, both in terms of numbers and training.

“You look at the big three captive management companies and they’re not hiring people either, but they’re going to need more people,” Mr Barile said. “If you want to grow the domicile then you have to get the people, not just people with a broad understanding of the industry, but people who understand the details of the business, so you can avoid running into problems later on, particularly with reinsurance contracts.”

The presence of a huge reinsurance sector in Bermuda was an attraction to captives, Mr Barile said. And new capital brought into the industry by some of the leading American hedge fund managers only enhanced the marketplace.

John Paulson with PaCRe, Steven Cohen with SACRe and Daniel Loeb with Third Point Re had come to Bermuda “seeing the same thing I’m seeing” in terms of growing opportunities from growing captive insurance companies, he said. This developing situation was creating a “bonanza” of insurance business for Bermuda, he said.

US states were stepping up their efforts to claim a larger share of captive business by enacting laws and regulations to create an attractive environment for the industry, he added.

In New Jersey, Governor Chris Christie signed a law that allowed captives to be formed in the Garden State for the first time. This year telecommunications giant Verizon and insurer Prudential have formed captives there. Mr Barile expects to see more states following suit.

“I’m seeing states getting aggressive, because governors recognise they need revenue so badly, so they’re putting captive legislation on the table,” he said. “Vermont has spent a lot of time building its infrastructure, New Jersey and Florida have come out with their own captive concepts and Hawaii has picked up about 200 captives, mostly from the West Coast.”

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