An intimate but educational affair, the Captives & Corporate Insurance Strategies Summit in Toronto served to provide a refreshing blend of industry updates, educational discussions and interactive panels...
An intimate but educational affair, the Captives & Corporate Insurance Strategies Summit in Toronto served to provide a refreshing blend of industry updates, educational discussions and interactive panels.
The focus of the sessions also shifted, ranging from investment strategies to regulatory compliance and financial markets.
Although the audience was a mixture of industry stalwarts and relative newcomers, a large portion of the conference’s content was dedicated to education. This was illustrated by a number of case studies presented in order to edify those assembled on industry best practices.
With this theme in mind, one of the panel discussions focused on how to optimise a captive once established. The panel explained that 40 to 50 cents of every premium dollar given by companies to commercial insurers is spent on expenses, overheads and the like—precisely the kind of outlay that can occur from an inefficient insurance strategy.
The speakers claimed that an important contributor to the optimisation of a captive programme was to have the correct mentality about the concept of captive insurance itself. One panellist said: “A captive insurance programme is a long-term focus, not a short-term fix. Moreover, captives formed purely as a method of gaining favourable tax treatment will most likely fail. Captives need to be seen as a strategic asset, not a headache.”
The panel explained that communication is another key component to the success of a captive—this includes being proactive in keeping up with any incoming regulations and maintaining a good understanding of the relevant jurisdictional landscape.
According to speakers in a separate panel discussion, the practice of “hardening a captive” is integral to surviving audits and eventually thriving under increasing regulatory scrutiny. The panel said that the key to doing this successfully is understanding a captive’s primary exposures, bringing in the correct experts such as actuaries and accountants to help, and managing reputational risk.
One speaker claimed that financial modelling is a useful tool to “justify the use of a captive to CFOs” and influence how a captive’s board makes decisions. Self-auditing was a recurring theme throughout the conference, with one speaker pointing out that the phenomenon would soon become best practice in the industry, and a useful way to harden a captive against audit.
Other important techniques pointed out by the speakers included having “contemporaneous documentation” and managing reputational risk through the use of transparency. Cooperation with ratings agencies is essential for this, according to one speaker, who would not even consider working with an unrated entity.
Continuing the theme of compliance with regulations, a later panel discussed the importance of using “clean” documentation when it comes to efficient captive governance.
The panel said that getting “the facts” in a captive’s paper trail correct is the ideal way to do this, and cited the case of Standard Life Assurance Company of Canada as an example of how not to go about it.
After establishing a new branch in Bermuda, Standard Life expected an asset bump of around $1.2 billion but was found by the Tax Court of Canada to have acted incorrectly.The judge cited mixed-up dates in the signing of a reinsurance treaty and the hiring of an unqualified bookkeeper as examples of Standard Life’s clerical mistakes.
One panellist said: “Facts that might look minute at first can come together to create an important problem. All the pieces must line up towards the same goal.”
The panel suggested submitting the minutes of board meetings for review as a way to avoid such complications.
Moving from defence to offence, so to speak, the subject of investment strategies was broached by another panel. The speakers recommended equities as having the best potential returns, despite historically being seen as more of a risk.
Although the panel predicted that yields would “grind higher” in the coming years, they stressed this would not be in a straight line. They also predicted that there would be less investment in fixed income over the long term.
As well as the educational sessions, the conference allowed time for market updates and some domicile-specific industry discussion. Given the location of the event and the number of attendees from the Caribbean, much was mentioned of the business-friendly tax agreements between Canada and domiciles such as Bermuda, the British Virgin Islands and Barbados.
Spokespeople from Bermuda and the British Virgin Islands discussed proposed expansion into Latin America and Asia, given that 60 percent of both domiciles’ business is currently sourced from the US.
Canada, in particular, is the number one source market for Barbados, which is largely due to the great deal of mining company captives from the country.
In other positive news, the panel expressed its comfort with issues such as the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting plan and pending Solvency II implementation in Europe.
One speaker pointed out that captive domiciles should welcome this increasing level of scrutiny, as it breeds transparency and reveals any holes in the legislation that need to be mended.
