A European domiciled cell captive has successfully relocated to a US domicile and converted into a full captive, according to Oliver Schofield, managing partner, Risk and Insurance Strategy Consultants (RISCS).
The cell was established five years ago, but a change in focus on business development by the parent company 18 months ago resulted in it wishing to consider alternative financing structures in the US.
Schofield explains that the company decided that they should be looking to transfer their cell, from the European location to the US location, in order to satisfy these alternative financing opportunities.
He notes that the company wanted to focus on the opportunities that came from implementing these alternatives in terms of a more cost attractive client-focussed solution. Schofield highlights that having a captive in a US location would enable the company to be able to deliver those improved solutions to a number of its clients on a direct basis in certain parts of the US.
RISCS says that it was important for the client to be able to preserve the underwriting track record of the cell into the new full captive.
This was important for the company because one day it will consider getting a rating for its new direct writing captive, Schofield notes.
He adds: “By transferring from a cell to a full captive, the client will be able to preserve the results of its previous five years of underwriting, which you can't do if you simply set up a new captive and close the old one as there's no track record to import given the old captive has been closed.”
RISCS found a way of the new company being able to absorb or inherit the underwriting success of the previous vehicle.
Schofield explains the process noting that it was important to ensure that everything happened on the same day.
“This includes ensuring the regulators in location one signed off on the transfer from location one to location two, and the regulators in location two gave the licence and accepted the commencement of underwriting at exactly the same moment,” he says.
Schofield suggests that this could be an option for companies, particularly those thinking of redomestication.
He states: “When considering redomestication, there's always the challenge about what will be done with the old liabilities: will they be transferred to a third party via a reinsurance to close contract, or novated back to the original fronting insurer – both options being perfectly acceptable but for which premium will be required and the underwriting track record disappears.”
He concludes: “I think the opportunities are immense in this space, and it all just goes to show that when you get everybody working together for a common good, many things become possible.”
