Sandy Bigglestone, Christine Brown and Kevin Mead discuss the prosperous landscape of the captive industry Green Mountain State, as well as the state’s recent legislative amendments and what to expect from this year’s VCIA conference
Hailed as a “Gold Standard” domicile, Vermont has long stood out in the captive industry as a mature and established onshore jurisdiction. With consistently high licensing figures and legislative amendments on an annual basis, there is no denying that Vermont’s captive market is booming.
Sandy Bigglestone, director of captive insurance at the Vermont Department of Financial Regulation (DFR), notes that some of the most effective ways to assess market conditions is through discussions with industry, as well as prospect meetings and licensing activities, as captive formations are indicative of how businesses are responding to the market.
And there is certainly no shortage of new licenses. Describing the Vermont captive market as robust, Kevin Mead, president of the Vermont Captive Insurance Association (VCIA), notes that licensing statistics for 2021 marked the fourth highest number of new captives at 45 issued licenses.
This propelled Vermont to begin 2022 with a total of 620 licensed captives, consisting of 589 active captives and 31 dormant entities. In addition, the state’s 52 sponsored cell captives hosted nearly 500 cells and separate accounts at the beginning of the year.
“New proposals articulate the main reasons why captive utilisation is desirable,” Bigglestone explains. “Reasons point to difficult renewals, pressures on retentions, unattractive policy terms, reinsurance market issues, and pricing.”
The Vermont DFR observes a trend of some recreational organisations receiving non-renewal notices for either general liability or directors’ and officers’ (D&O) coverage from long-term commercial carriers as they are no longer serving the industry sector. Bigglestone notes that this has accelerated the interest of these organisations in forming a captive into a necessity.
Christine Brown, assistant director of the captive insurance division at the DFR, adds: “Companies are facing double or even triple digit increases in premiums, carriers that are pulling out of certain industry sectors altogether, and difficulty placing full reinsurance towers. Captives are the perfect solution for companies that are willing and able to take on some of the risk when faced with these challenges.”
Bigglestone identifies that, in addition to the current needs, the department still receives captive business proposals addressing long-term planning for risk management.
“The primary motivations are to have the ability to control risk management and claims handling. Captives are still being formed for the typical or standard lines of insurance such as general liability, property, auto liability and workers’ compensation insurance,” she says.
This is likely to remain the expectation, as these types of standard risks can more easily capture data, and are readily available to shift in and out of the commercial marketplace, Bigglestone highlights.
As well as the traditional risks placed in a captive, she notes an emergence of other risks representing a range of business needs — most notably, a growing demand for cyber liability.
Legislative amendments
In keeping pace with this ever-evolving captive landscape, Vermont recently passed legislative amendments in House Bill 515. “Many of the legislative changes made this year were ‘housekeeping’; cleaning up existing law and making minor changes for simplification, clarity and consistency,” Brown states.
This includes simplified reporting requirements, replacing the obligation for fiscal year filers to complete a special calendar year report with a simpler report for premium tax reconciliation on a fiscal year basis. The DFR notes that approximately 15 per cent of Vermont-domiciled captives report on a fiscal year basis rather than calendar year.
In addition, the amendments improve delinquency procedures in the event of a sponsored cell company or an individual cell becomes insolvent.
The Vermont DFR is now authorised to efficiently deal with the affected cell without impacting the solvent cells or limiting the department’s current authority.
Bigglestone explains: “Each year, we have made changes to the laws pertaining to cells. This year, an amendment was made to clarify the treatment of affiliated business in cells, since we found the definitions to lack consistency. Therefore, the change is intended to allow the same risks for pure and other types of captives, with respect to affiliated and controlled-affiliated business.”
The amendments also enable Vermont-domiciled captive insurance companies to enter into parametric risk transfer contracts. As an emerging form of financial protection for catastrophe events, parametric contracts are more favourable than traditional indemnity insurance as they are not subjected to a lengthy claims adjustment process.
VCIA’s Mead comments: “Organisations use captives as a vehicle for all types of risk management tools, not just insurance, so it will be helpful for companies to have the explicit ability for their captive to enter into a parametric insurance contract. We certainly perceive this as a growth area for Vermont, especially now that the legislation has clarified the position.”
This synergy of the capital markets and index-based solutions is a promising, innovative venture into the future for the captive industry, not just in Vermont but globally.
Brown adds: “The parametric language is a perfect example of trying to keep up with emerging risks and challenges, given the steep increases in property coverage pricing and the increased use of captives for property risks. [The DFR] has also worked with consulting actuaries to try to better understand cybersecurity risks and the challenges of pricing this coverage.”
“Vermont’s captive laws allow for all kinds of solutions; however, each year we undergo a valuable process of identifying possible legislative changes to address or accommodate market challenges or innovation,” Bigglestone says. “We meet with VCIA to understand the needs of the marketplace and vet ideas for change.”
Looking forward
The future of the Vermont captive market certainly looks optimistic, with Mead describing “a vibrant industry” that reflects and responds to the needs of companies for alternative risk products.He adds that the most significant challenge facing the captive industry is human capital as the industry changes demographically and geographically. With the former referring to the industry-wide talent crisis, the latter is attributable to the trend of remote working as exacerbated by the COVID-19 pandemic.
The captive community in Vermont is actively working to address the risk that Vermont-based work might no longer be physically completed in the state, according to Mead.
“The professional community that supports captives here is strong, but we are working with other industry partners as well as developing our own initiatives to ensure that the tremendous demand out there for services can be supported by a developing Vermont-based workforce.”
He adds: “With our strong partners in the Vermont Agency of Commerce and Community Development, spearheaded by Brittany Nevins, we will be addressing the risk factors for growth in Vermont.”
Although the risk factors relating to the changing workforce and labour shortage are industry-wide, Mead highlights that other challenges are derived from Vermont’s dominant position that cannot be taken for granted. “We must continually address the factors that made us this strong and ensure that we maintain that advantage,” he warns.
“We have always received very positive feedback from members and other stakeholders on our legislative and regulatory advocacy work. This is something that you can expect to see continue to be enhanced, and we will also seek to better communicate the value of this work across the industry.”
The captive development agenda for the Vermont DFR reflects similar priorities, with Bigglestone anticipating a continued growth in captive programmes throughout the remainder of 2022. She adds that the department will also continue to evaluate the laws and regulations of the state to ensure they best serve the captive market.
“A big part of our continued focus will be on quality-control and to role-model good captive regulation,” Bigglestone says. “I expect to grow the regulatory staffing to ensure we have all the necessary resources to manage our duties, and to develop improvements in how we do our work.”
2022 conference
And what can attendees expect from this year’s VCIA conference? Mead summarises in one word: “crowded!”
He adds the 2022 event will have an increased focus on networking and interaction rather than purely presentations — although these are not in short supply. Scheduled sessions include discussions on a range of risks, including cyber, parametric, climate, and third-party risks.
Embracing the technological element, there will also be sessions on data analytics and insurtech, while hot topics on the obstacles facing the industry include labour shortages, supply disruption and social inflation challenges, among others.
“I keep hearing people talk about how excited they are to come to Vermont for the conference again after so long being away,” Brown says. “As usual, we can expect expert panels and excellent education, fun networking events, and lots of people who are just happy to be together again.”
Bigglestone comments: “The VCIA conference is expected to be incredible as usual, and an in-person reunion to not disappoint! Attendees can expect to participate in networking, hear Ignite Talks live, and learn from the premiere captive insurance education venue in the world.”
Mead adds that his first annual VCIA conference as president of the association also marks the final conference for Dave Provost in the role of deputy commissioner, with a symbolic “passing of the baton” to his successor, Sandy Bigglestone.
To which DFR’s Brown says: “Sandy has worked in every role in our division, from examiner to director, thus bringing a deep knowledge and passion to the deputy role. I have the utmost confidence that Sandy will be a stalwart leader and will continue to protect and serve the captive industry in Vermont and more broadly.”
“Attendees will also see lots of new faces, and also seeing the stability and professionalism that underpins the ‘Vermont Advantage’,” Mead concludes.
