Four years after Connecticut created a new law authorizing “captive” insurance companies in the state, Thomson Reuters became the first to establish one here, with the company among Stamford”™s larger employers.
Captive insurers operate to insure the parent entities”™ own risks, putting a premium on capital preservation rather than operating results. The industry was born out of frustration with both insurance capacity shortages and rate swings, according to insurance analyst A.M. Best Co.
Ironically, Connecticut landed its first captive in Thomson Reuters Risk Management Inc. amid an ongoing “soft” market of prolonged low prices, a scenario that makes companies less inclined to create captive insurers on the expectation of landing cheap rates in the standard marketplace.
The CEO of the Greenwich-based carrier W.R. Berkley Corp. says he expects property and casualty insurance rates to go up in the coming few years.
“History would suggest that areas that get the ”˜softest”™ for an extended period of time tend to be the ones that offer the best opportunity in a hard market,” William R. Berkley said in a late July conference call.
That could drive more corporations to dump their insurance risks into a captive structure ”“ and as more states such as Connecticut seek that business, consider relocating the domicile where companies maintain their captive entities.
A marketplace snapshot by Oldwick, N.J.-based A.M. Best published in June suggested a 21 percent decline in net income among U.S. captive insurers, reflecting decreases in both underwriting and investment income, as well as capital gains.
“Captive sponsors have not always considered the U.S. as their first choice to locate, but that may be changing,” A.M. Best Business Development Manager Tina Bukow stated in a forward to the report.
“Many U.S. states are increasing their understanding of captive regulation, with New Jersey and Tennessee joining the expanding ranks of U.S. states that are captive domiciles. The number of captives domiciled onshore continues to grow nationally; it appears U.S. domiciled captive groups are here to stay.”
The trade publication Captive Review ranked Vermont as the top state for captive insurance companies, trailing only Bermuda and the Cayman Islands worldwide. Utah and Hawaii were the only other states among the top 10 international captive insurer locales. Vermont has more than 900 captive insurers today.
Connecticut updated its own captive insurance law after Gov. Dannel P. Malloy convened a special legislative session last fall focused on jobs.
“The governor has made it clear from the start that Connecticut is serious about growing the industry,” Thomas Leonardi, commissioner of the Connecticut Insurance Department, said in a statement. “Through professional and consistent regulation, the Insurance Department will make certain that Connecticut-based captives will be noted for their quality and financial stability.”
Marsh Captive Solutions is Thomson Reuters”™ captive insurance manager and advised the firm on its relocation from Delaware, with Edwards Wildman Palmer L.L.P. providing legal counsel.
“For the emergence of a captive domicile (market) ”¦ you need the intellectual infrastructure and you”™ve got that in Connecticut,” said Nick Pearson, a New York City-based attorney with Edwards Wildman, which has a Stamford office as well. “I think that”™s critical and I think that will make it much more feasible for Connecticut to move quickly into captive insurance.”
