Corning Incorporated senior risk manager Brian Casey revealed the company would probably close its Bermuda-based captive insurer later this year.

The announcement surprised risk managers speaking at the conference who said new captives were on the increase and that captives were flexible.

Recent numbers from the Bermuda Insurance Institute show captive managers have reason to be bullish about this type of insurance company, one set up by a corporation to insure the risks of its parent corporation.

Bermuda, the world's largest captive domicile, has enjoyed three of its best years when it comes to insurance company incorporations despite the soft market. In 1996, 97 new insurance companies set up in Bermuda, most of them captives.

Expectations are that captive formations rise during hard market conditions, when capacity is scarce.

The recent healthy numbers indicate corporate parents are likely viewing captives as integral risk management tools, and not just for their financial advantage.

"I spent the better part of (yesterday) morning trying to figure out where we are going with our own (captive),'' Mr. Casey said.

Minutes before arriving at the Southampton Princess, where he took part in a panel discussion on challenges facing captives, he met with the captive's manager.

"Some of the (captive's) original uses are no longer appropriate,'' he said.

He would not name the captive but according to the Tillinghast captive directory, Corning's captive is Teddington Company Ltd., managed by Johnson & Higgins (Bermuda) Ltd.

Mr. Casey said ridiculously low marine retentions, zero retentions on the property side, and Corning spinning off its medical subsidiary earlier this year, were behind the move to close the captive but he would not elaborate.

He also said that during the late 1980s, the company saw a higher frequency of claims while many of the reinsurance partners chosen had become insolvent.

"Six different reinsurance contracts all came back to haunt us. This brings us down the path (to) closing the captive, probably by the end of the year.'' Mutual Risk Management (Bermuda) president and CEO Simon Scupham said the Corning move was not reflective of the market.

"We're seeing a lot more (captives) formed than shut down.'' Marsh & McLennan Management Services (Bermuda) president Andrew Carr said New York state, "after years of planning the demise of captives, were now welcoming them.'' Mr. Carr added that he did not think tax changes would stop the formation of captives.

"Tax should not be the greatest motivation for setting up a captive.'' Mr.

Scupham said.

Risk managers David Burr and William Drum demonstrated the flexibility of the captives.

Mr. Burr is assistant vice president of risk management at Burlington Northern Santa Fe Corp. while Mr. Drum is vice president and director of risk management for Ralston Purina Corp. Santa Fe was part of a group captive and currently has its own captive. Ralston Purina's captive is Checkerboard Insurance Company Ltd. which is Bermuda domiciled and managed by Marsh & McLennan.

Mr. Burr said though Railroad Association Insurance Ltd. (RAIL) did not suit the needs of its 11 railroad company members, Santa Fe had had its own single parent captive since 1990, Santa Fe Pacific Insurance Company.

Domiciled in Vermont, it was set up in 1990 for cost allocation purposes but has expanded to access reinsurance, replace inefficient self insurance programmes and explore employee benefit coverage.

It also has insurance uses for the parent company's suppliers and contractors.

Santa Fe was one of 11 railway companies that recently sold Bermuda domiciled RAIL to EXEL Ltd. subsidiary X.L. Insurance Company, Ltd.

RAIL was a "true creature of the hard market,'' Mr. Burr, former RAIL president, said. "RAIL began in the worst of times and ended in the best of times.'' RAIL was sold because there was a "lack of common purpose'' among owners and the market had significant capital to offer.

The company chose Vermont because of its proximity to Chicago.

Mr. Drum said Checkerboard, set up in 1975, had been mainly used for foreign property business and to overcome tariff rates but that it had expanded to bring local operating companies deductibles up corporate levels.

Mr. Drum also said he was a risk management consultant for Purina Ralston spin off companies. Consulting for spin off company RPI, has put the captive just over 50 percent non-related business.

"Captives are only one of many risk management tools,'' he said.

Asked if he would form a captive today, he said yes but added "if I owned the company I wouldn't have one. But (then again) I wouldn't buy insurance.'' Over time, a company the size of Ralston Purina could likely handle most risks it faced.