State of the Captive Insurance Market

Transcription

1 State f the Captive Insurance Market Octber 14, 2015 Brady Yung President & CEO

2 Presentatin Outline Captive Industry Review 2. Dmicile Review 3. Captive Uses 4. Grups and RRGs 5. Regulatry and Infrastructure 6. SRS Recent Experience 7. Outlk fr the next 12 mnths

3 3 Captive Industry Review There was strng grwth in the captive industry in 2014 with an increase in active captives f 8.6%. Over 500 new captives were reprted Grwth driven by small captives and new cells Mre new cell r series frmatins reprted than stand alne captives Cntinued trends frm prir 2-3 years Emerging dmiciles saw a disprprtinate share f the grwth. Tw new dmiciles, Tennessee and Nrth Carlina, added mre captives and cells/series than any dmicile ther than Delaware. Traditinal prperty & casualty captives remained strng despite flattening cmmercial insurance premiums. In 2015, all the abve trends have cntinued despite the strm cluds gathering ver the small captive market

4 4 Captive Industry Review Medical Stp Lss interest cntinues t be high and activity is increasing bth in the grup area as well as fr individual captive wners Favrable rulings fr large captives in 2014 but attacks by the IRS n small captive wners and s called captive prmters are increasing Cmpetitin between dmiciles cntinues t grw resulting in mre law changes with mre t cme. Pressure n captive wners t bring captives hme.

5 Selecting a Captive Dmicile The ptins fr captive wners cntinue t grw The material differences between dmiciles cntinues t shrink Chices ften cme dwn t: Accessibility and Experience f the regulatrs What is the business fcus f the captive/fit with the dmicile (healthcare, benefits, 3 rd party risk, etc.) Dmicile Taxes and Fees Quality f Infrastruture Cnvenience

6 Dmicile Review 6 The ttal number f active captives in the established dmiciles we track increased 4.5% ver This is dwn frm the 2013 grwth rate f 6%, but cnsistent with the prir five years ( ). Grwth amng emerging dmiciles was strng. Including these dmiciles, the industry grew by 8.6% in New frmatins in established dmiciles fell by 9.2% cmpared t The first decline in six years ( ). Clsures were dwn 6.5% in established dmiciles cmpared t 2013.

7 Ttal Active Captives % change % change Bermuda 841* % Nevada % Cayman % Suth Carlina % Vermnt % DC % Utah % Kentucky % Delaware % Arizna % Hawaii % Emerging Mntana % Dmiciles* % % Change Cmbined Ttal ex Emerging Dmiciles 3,980 3, % Cmbined Ttal inc Emerging Dmiciles 4,249 3, % * Alabama had 40 licensed captives n 12/31/2014 up frm 20 the previus year

8 8 New Captive Frmatins* % change % change Bermuda % Mntana % Cayman % Nevada % Vermnt % Suth Carlina % Utah % DC % Delaware % Kentucky % Hawaii % Arizna % % Change Cmbined Ttal % * Including re-dmesticatins

9 9 Captive Clsures % change % change Bermuda 16* 18* -11.1% Mntana % Cayman % Nevada % Vermnt % Suth Carlina % Utah % DC % Delaware % Kentucky % Hawaii % Arizna % % Change Cmbined Ttal % * SRS estimate

10 Emerging Dmiciles 10 The newer emerging dmiciles grew rapidly cmpared t mst f the established dmiciles. Nrth Carlina, Tennessee and Oklahma all gained tractin and have quickly reached critical mass as captive dmiciles. Texas has experienced slid grwth with sme big cmpanies mving hme. Mre interest in hme state re-dmesticatins with the chice f dmiciles available and the threat f self-prcurement tax. The emerging dmiciles have als benefited frm the cntinued grwth f the small captive market, and the latest captive legislatin including series LLC and cell structures. Others dmiciles cntinue t enter the market including Ohi which passed captive legislatin in 2014.

11 11 Cells and Series Captives The grwth in cells and series captives cntinued t be strng in 2014 with participants taking advantage f new dmicile s cell and series legislatin Tennessee licensed 194 new prtected cells in 2014 fr a ttal f 206. Delaware s series activity was belw 2013, but it still added 141 SBUs. The dmicile nw has 688 active SBUs and 12 active cells. Nrth Carlina reprted 120 new prtected cells in additin t the new captives licensed in Cayman reprted 606 active segregated prtflis acrss 139 segregated prtfli cmpanies, at 12/31/2014 Utah reprted 19 cell frmatins and 5 clsures fr a ttal f 71 active cells. Mntana licensed 19 new SBUs and 29 new captive cells during DC reprted strng grwth in prtected cells in 2014 There cntinues t be an updating f captive legislatin t allw new cell r series structures and at least match that available in cmpeting dmiciles.

12 Small Captives 12 Fr the past five r mre years small (< $1.2 millin in annual premium) captives were the majr driver f captive grwth. Factrs driving the grwth cntinued frm prir years: Middle market clients realizing the benefits f a captive arrangement. The ecnmy is better and mre cmpanies have the ability t cnsider a captive Frming as whlly-wned single parent captives and as cells is easier in mre places and less expensive The grwth is attracting new entrants int the captive prductin space (supply/sales driven).

13 Small Captives IRS Scrutiny 13 The IRS has stepped up their effrts with particular emphasis n small captive wners and prmters ut selling captives fr the tax savings as ppsed t the risk management and insurance benefits Small captives recently named t the IRS dirty dzen f tax scams which are the fcus f the Service s attentin in 2015.

14 Captive Uses - Traditinal Predictins 2014 and YTD Activity Grup captives will cntinue t add members nt many new grup P&C captives will be frmed given current market cnditins Mre captive wners will expand 3 rd party business activities t grw and diversify While verall feasibility remained strng, grup captive feasibility was limited by cmmercial market cnditins. Existing grups are reprting slid grwth due t a variety f factrs (imprved ecnmic cnditins, industry rate increases). Activity was largely limited t grup medical stp lss. Many single parents are cnsidering insuring this risk in their captives and/r adding this cverage.

15 Captive Uses Emplyee Benefits 15 Medical Stp Lss (MSL) Grup Captives Existing established prgrams cntinue t see grwth, benefits fr emplyers frmerly fully-insured mving t a self-funded arrangement Grwing interest frm bth brkers and emplyers The emplyer mandate regulatin in effect fr plans starting 2015 may drive mre small/mid-size emplyers t lk at selffunding/captive State Regulatin/Prpsed state regulatin (and NAIC) regarding minimum stp-lss attachments and ther items still a key factr fr the future f sme f these prgrams

16 Captive Uses Emplyee Benefits 16 Medical Stp Lss Single parent (individual cmpanies) A significant uptick in emplyers placing Medical Stp Lss in their captives fr tw primary reasns: Mre cmpanies seeing the benefit f retaining mre risk in the captive and buying reinsurance directly at a lwer cst. The ptential t have medical stp lss treated as unrelated third party business. ERISA Benefits (LTD, Grup Life, etc): Over 35 majr cmpanies and the mmentum and interest is accelerating Obtaining DOL apprval fr emplyee benefits is mving back t the fast track ( days) after a temprary suspensin in 2012.

17 RRG Activity 17 RRG premiums are relatively flat: Larger mature RRGs remain strng Newer RRGs are struggling t reach critical mass under cmpetitin frm the cmmercial market The actual number f RRGs cntinued their decline frm Active RRG numbers decreased t 238, the lwest level since Retirements were lwer than 2013 at 19, althugh new frmatins were lwer at seven, the lwest level since the hard market after 9/11. Five frmatins were in transprtatin where rates are hardening. 11 retirements were in healthcare where cmmercial rates were sft. Spnsred (by insurers) RRGs are slving specific issues/needs

18 Healthcare Prvider Owned Captives 18 Cntinued merger/acquisitin activity in healthcare in general, resulting in the merger f healthcare captives. Increasing trend tward frmer 3rd-party physicians nw becming emplyed physicians and part f the health system s insurance prgram, bth fr captive cverage and cmmercial cverage. Mre discussin arund prir acts and tail cverage fr these nw emplyed physicians Main cverage line in healthcare captives remains medical prfessinal liability but captives lking at ther lines, particularly medical stp lss. Claim severity still trending up apprx. 2-3%, althugh claim frequency seems flat and therefre underwriting results are generally psitive, creating healthy surplus. This has led t mre fcus n getting mre perfrmance frm investable surplus and/r dividends back t parent.

19 Captive Taxatin 19 In the past 12 mnths we have seen several ntable wins fr the taxpayer Rent-a-Center case, which included cncentratin f risk (60%) in ne subsidiary and a guarantee Securitas Validus: trial curt determined retrcessin was nt subject t cascading FET. Revenue Ruling which treated retirees as individual risks fr retiree medical. Implicatins fr medical stp lss and argument fr treatment as third party business. Self prcurement tax sme states are very aggressive which is leading many captives t mve t their hme state. Increased IRS scrutiny n small captives perhaps less interest in large traditinal captives

20 Market Trends/Predictins 20 We expect current captive trends t cntinue: Cntinued captive grwth t be driven by small captives and cells unless material negative changes are passed n 831(b) qualificatins RRG premiums t be flat. We have nt seen the end f the clsures as the class f struggle t reach critical mass. Hetergeneus grup captives will cntinue t gain market share bth n the p&c side and especially fr grup medical stp lss as the reality f ACA kicks in Hmgeneus grup captive will experience sme grwth especially in higher risk industries (cnstructin, transprtatin, etc.) Hme states with captive laws and receptive regulatrs will cntinue t grw established dmiciles will hld their wn We anticipate a mre restrictive envirnment in the small captive playing field r at least clearer picture n anticipated changes.

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