Amid favourable market conditions, Joe McDonald and Lauren Robertson of the South Carolina Department of Insurance (SCDOI) discuss the state’s regulatory oversight and development agenda
How do you assess current market conditions for the captive industry in South Carolina? What about the landscape?
Current assessments of market conditions for the captive industry appear to all be very positive. Captives were originally created to address availability and affordability issues in the commercial market. As everyone is keenly aware, we are once again experiencing these hard market conditions.
Specifically, it is a hard market for directors’ and officers’ (D&O) liability, cyber liability and commercial auto, just to name a few. With the commercial and reinsurance markets tightening conditions and raising rates, we are seeing more coverages being put in captive insurance companies.
Commercial carriers are requiring insureds to increase their deductibles and stack limits, retaining more risk. Therefore, captive professionals and those with captive experience are primed to offer creative responses to numerous industries being negatively impacted by current market conditions.
How is the regulatory environment of South Carolina beneficial for captive owners? Is the department working on any legislative amendments?
The regulatory environment in South Carolina is beneficial for captive owners for many reasons. We are a mature domicile with a highly experienced autonomous captive division that is dedicated to regulating captive insurance companies by applying the principle of proportionality in our approach.
Working closely with the South Carolina Captive Insurance Association, the SCDOI is planning to propose certain statutory amendments that will expand, update and refine the intention of the existing captive statute and supporting regulations. It is imperative that the letter of the law and the intention of the law are synoptic in their vision of captive regulation.
Furthermore, as the sophistication increases in how companies use captives in a more efficient manner, we continue to facilitate an efficient use of excess capital and surplus for owners. All of this adds value to captive owners in South Carolina.
What are the most significant challenges facing the captive industry, in South Carolina and as a whole?
Several significant challenges facing the captive industry include decreasing capacity in the reinsurance market, procurement taxes, increased scrutiny by the Internal Revenue Service, and “promoters” who market the industry for the wrong reasons.
That said, we don’t know what we don’t know. The greatest challenges to the industry are those things we are currently unaware of: The next black swan event, how to best manage and navigate the modern world of volatility, uncertainty, complexity and ambiguity, and how to properly incorporate ESG and other themes of the zeitgeist. This all applies to South Carolina as a captive domicile as well.
What emerging risks have been identified in the pipeline for the captive industry in 2022? How will the SCDOI work to address or accommodate these risks?
Key emerging risks include: cyber liability, D&O, climate risk, coastal property, rising healthcare costs, cannabis, and commercial auto liability.
The captive division in South Carolina will respond to these emerging risks by remaining aware of the wider insurance and reinsurance markets. Meeting with service providers and prospective owners to discuss creative ways to use a captive to fill in the gaps that the commercial market is not well suited for helps us keep our finger on the pulse of the industry as a whole.
What will be top of the SCDOI’s captive development agenda for 2022?
For us, it will be a focus on relationships. We consistently emphasise that we want quality companies in South Carolina. But the calibre of companies that we want to attract, and that we already have here, must also experience our professionalism, our responsiveness, and know how greatly we value them.
While professional interactions will necessarily revolve around doing business, we also want to take the time and make the additional effort to cultivate relationships in a way that companies and captive professionals here feel appreciated and heard. Relationships drive this industry, and people matter to us.
