Captive Update

News of the Alternative Risk Markets From the A.M. Best Company February, 2014

A. M. Best has been covering the captive sector for several decades. Today we rate approximately 200 captive ventures in over 40 jurisdictions, ranging from Hawaii in the West to Labuan in the East. Although a rating on a captive is comparable to any other rating issued by AM Best, we recognize that captives serve special purposes and typically have an operating style that differs from the conventional market. A rating can be of benefit to a captive by demonstrating its financial strength and its best practice performance to a variety of stakeholders, such as fronting insurers, reinsurers and a parent not otherwise engaged in insurance. Contents

A.M. Best Rating Actions

A.M. Best Affirms Ratings of Agrinational Insurance Company and ADM Insurance Company ...... 3 A.M. Best Affirms Ratings of Marble Reinsurance Corporation ...... 3 A.M. Best Upgrades Ratings of Bison Insurance Company Limited ...... 3 A.M. Best Assigns Ratings to Isosceles Insurance Ltd...... 4 A.M. Best Assigns Ratings to Castle Harbour Insurance Limited, Harrington Sound Insurance Limited and Colliers Bay Insurance Co...... 4 A.M. Best Affirms Ratings of the Housing Authority Insurance Group Members . 5 A.M. Best Affirms Ratings of Evergreen Reinsurance Company, Ltd...... 5 A.M. Best Withdraws Ratings of National Contractors Insurance Company, Inc., A RRG ...... 6 A.M. Best Affirms Ratings of Noble Assurance Company ...... 6 A.M. Best Assigns Ratings to AES Global Insurance Company ...... 6 A.M. Best Assigns Ratings to Transneft Insurance Company, JSC ...... 6

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. For additional details, refer to our Terms of Use available at the A.M. Best Company website: www.ambest. A.M. Best Affirms Ratings of ASSA Compania de Seguros, S.A., Lion Reinsurance Company Limited and Reaseguradora America SPC Ltd . . . 7 A.M. Best Assigns Ratings to Ocean International Reinsurance Company Limited ...... 8 Methodology Sources ...... 8

Domiciles

Bermuda Agrees to Help the US Implement FATCA ...... 8 Number of New Bermuda Insurers Surges by 72% to 91 in 2013 ...... 9 North Carolina Works to Position Itself as Long-Term Captive Competitor . . . 9 Newly Approved Captive Manager Has Three Captive Applications Already Pending in North Carolina ...... 10 North Carolina Names New Captives Director ...... 11 North Carolina DOI Grants Licenses to First Four Captive Insurers . . . . . 11 Tennessee Licenses 23 Captive Insurers in 2013; Reforms Seen as Key . . . . 12 New Domicile Texas Begins Lining Up Captive Insurers ...... 13 Delaware Captive Director: NAIC Proposal to Redefine Life Captives as Multistate Insurers a Step Backward ...... 13

Captive Developments

Swiss Re: FIO Report Includes Positive Recommendations on Reinsurance Collateral Agreements, Captive Transparency ...... 15 NAIC Panel Considers Defining Some Captives as Multistate Insurers . . . . 16 NAIC Panel Seeking to Attract More Groups, Insurers in Third ORSA Pilot . . 16 Vermont Expects Growth of Licensed Captives to Continue in 2014 . . . . 17 Willis Global Captive Management Names Chief Executive ...... 18 Industry Panelist Expects Captive Growth in Native American Domiciles . . 18 A.M. Best Rating Actions improve in the mid-term, owing to strong profitability and a capital injection from the parent company, Marubeni Corpo- A.M. Best Affirms Ratings of Agrinational Insurance ration (Marubeni) (Japan). Company and ADM Insurance Company Marble Re reported strong profitability with an average 35% A.M. Best Co. has affirmed the financial strength rating of return on equity in the past three years, largely owing to A- (Excellent) and issuer credit ratings of “a-” of Agrinational its favorable underwriting results. The combined ratio re- Insurance Company (Agrinational) (Burlington, VT) and its mained at an average of 52% during the period with limited wholly owned subsidiary, ADM Insurance Company (AD- volatility. With enhanced capitalization through its parent’s MIC) (Phoenix, AZ). The outlook for all ratings is stable. capital injection in April 2013, Marble Re began expanding the product portfolio from fiscal year 2013 by leveraging The ratings of Agrinational are based on its adequate capi- the strong relationship with Marubeni’s group companies. talization level, overall favorable operating performance Most of the premium from the new portfolio will be ceded and its strategic role as a captive insurer of Archer Daniels to the third party reinsurers as Marble Re could secure sta- Midland Company (ADM) [NYSE: ADM]. ble income by earning ceding commissions, which indicates the limited underwriting risk from the new businesses. Partially offsetting these favorable rating factors is the high net retention on Agrinational’s property exposures, which Partially offsetting rating factors include an implementa- has produced some variability in operating results. Also, as a tion risk regarding Marble Re’s plan to expand its business single parent captive, Agrinational is exposed to concentra- portfolio and its parent company’s credit risk profile. The tion risk since its primary source of business is from ADM. expansion of product lines would create risk in its imple- Additionally, Agrinational provides insurance for a limited mentation given that the business scope has been limited amount of quasi third party businesses sourced through an up to marine cargo risk, despite Marubeni’s long history in industry pooling arrangement. operating its captive business. As a single parent captive of Marubeni, Marble Re has received a wide range of support As a means of diversifying its investment portfolio, Agrina- regarding capitalization, management team and its risk man- tional has invested in the leasing of railcars and barges that agement scheme. As such, Marble Re’s business relies on are production assets of ADM. Management considers these Marubeni’s credit risk profile and competitiveness. investments as long term and a better alignment of Agrina- tional’s capital structure while providing stability in cash While upward movement on Marble Re’s ratings is unlikely, flows and investment returns. downward pressure could arise if there is material deterioration in Marble Re’s risk-adjusted capitalization or signifi- ADMIC’s ratings are based on its role and strategic impor- cant downward movement in Marubeni’s credit risk profile. tance to ADM, as demonstrated by the inter-company rein- (November 13, 2013) surance arrangement between the affiliated members. A.M. Best Upgrades Ratings of Bison Insurance Key rating drivers that could lead to an upgrading of Agri- Company Limited national’s ratings are a stable underwriting performance as well as reduced overall net exposure over the next few A.M. Best Co. has upgraded the financial strength rating to years. A (Excellent) from A- (Excellent) and the issuer credit rating to “a” from “a-” of Bison Insurance Company Limited (Bison) Factors that could lead to a negative outlook and/or a (Charleston, SC). The outlook for both ratings is stable. downgrading of the company’s ratings are material loss of capital from either claims or investments, a reduced level The rating actions reflect Bison’s historically excellent of capital that does not support the ratings or an increase capitalization, consistent operating profitability driven by in net retention. The ratings are somewhat linked to ADM; favorable underwriting results, conservative reserve levels therefore, any unfavorable operating performance or mate- and effective enterprise risk management controls. The rial loss of capital could result in changes to the captive’s ratings also recognize Bison’s history of maintaining suf- ratings. ficient capital and financial resources to support its ongoing (November 7, 2013) obligations.

A.M. Best Affirms Ratings of Marble Reinsurance Partially offsetting these positive rating factors are Bison’s Corporation volatile underwriting results due to its low frequency high severity risk profile, coupled with its high net retained lim- A.M. Best Asia-Pacific Limited has affirmed the financial its relative to its available capital. Additionally, the continual- strength rating of A- (Excellent) and the issuer credit rat- ly changing risk profile of Bison’s primary insureds directly ing of “a-” of Marble Reinsurance Corporation (Marble Re) affects its risk profile. This is mitigated by the company’s (Federated State of Micronesia). The outlook of both ratings conservative reserving philosophy and the ongoing demon- is stable. strated support from its parent, Duke Energy Corporation (Duke Energy) [NYSE: DUK]. The ratings reflect Marble Re’s robust risk-adjusted capitalization and conservative operating strategy. Marble Re’s The risk management team of Duke Energy takes a holistic risk-adjusted capitalization, as measured by Best’s Capital approach to managing its risks and utilizes the captive as Adequacy Ratio, has remained strong and is expected to an integral part in this process. Bison’s long-term growth 3 opportunities primarily depend on the business success of These positive rating factors are partially offset by Isosceles’ Duke Energy. lack of a full test in a court of competent jurisdiction on the legality of the walled-off structure between any two or Bison’s underwriting results have proven to be less volatile more cells within a general account and the exclusive reli- in recent years, enabling it to produce underwriting profits ance on JLT for production of all of its business. A.M. Best and increase its capital base. Duke Energy spun off its natu- recognizes the complexities involved in this structure and ral gas and pipeline business, which generated substantially will regularly monitor the financial performance of the cell all of its large property losses, specifically, Moss Bluff and counterparties and the general account to ensure that the Gulf hurricane losses. capital is adequate to support Isosceles’ current ratings. Also offsetting these positive rating factors is the execution risk Given recent positive movement in Bison’s ratings, A.M. present in all new structures that bear risk. Best believes the company is well positioned at its current rating level, and the ratings are not expected to be Isosceles is expected to create several cells during its first upgraded and/or its outlook revised for the near term. year of operation for Colombian and other Latin American The potential for future earnings volatility and capital po- clients with needs for property, business interruption, cyber sition have already been considered in A.M. Best’s ratings risk, group life, marine and cargo coverages. process. Key rating factors that could lead to negative rating actions include a significant and sustained decline Factors that could influence the ratings of Isosceles include in Bison’s risk-adjusted capitalization as measured by changes in the financial ability of each individual client, its Best’s Capital Adequacy Ratio (BCAR), net operating BCAR score and overall risk profile of each individual cell, performance results that do not meet A.M. Best’s expecta- including commercial reinsurers’ ratings and the financial tions, or a material shift in its risk profile that could po- wherewithal of JLT and Isosceles. tentially undermine the stability of its ratings. In addition, (November 15, 2013) deterioration in the credit profile of Duke Energy could impact Bison’s ratings. A.M. Best Assigns Ratings to Castle Harbour Insurance (November 14, 2013) Limited, Harrington Sound Insurance Limited and Col- liers Bay Insurance Co. A.M. Best Assigns Ratings to Isosceles Insurance Ltd. A.M. Best Co. has assigned a financial strength rating of A A.M. Best Co. has assigned a financial strength rating of B++ (Excellent) and issuer credit ratings of “a” to Castle Harbour (Good) and an issuer credit rating of “bbb+” to Isosceles Insurance Limited, Harrington Sound Insurance Limited and Insurance Ltd. (Isosceles) (Bermuda). The outlook assigned Colliers Bay Insurance Limited (Cayman Islands) (together to both ratings is stable. known as the captives). The outlook assigned to all ratings is stable. All companies are domiciled in Bermuda, unless The ratings recognize Isosceles’ adequate capitalization, otherwise specified. as well as strict risk and exposure controls in the form of security and indemnification clauses of several agreements The ratings and outlook reflect the captives’ excellent between various key parties involved. These agreements capitalization and conservative operating strategy. The rat- significantly isolate Isosceles from liability and insulate each ings also consider the captives’ critical role and favorable cell from each other and from the general account. profile as part of the parent company, Schlumberger Lim- ited, as well as its excellent operating performance during The ratings further acknowledge the financial and operating the past five years, providing tailored insurance coverage strengths of Isosceles’ parent, JLT Group Plc (JLT), a global to certain subsidiaries of the parent for certain property/ provider of insurance and employee benefits related advice, casualty risks. brokerage and associated services. Furthermore, the ratings consider the financial wherewithal of each individual part Partially offsetting these positive rating factors are the cap- as well as the consolidated account’s, Best’s Capital Ad- tives’ relatively large limits in its general liability and prop- equacy Ratio (BCAR) and the underlying risks that each cell erty lines of business. Nevertheless, A.M. Best recognizes the insures. Additionally, the ratings recognize Isosceles’ ultimate substantial financial resources of the captives and its parent. third party reinsurance participation, which is composed of highly rated global reinsurers. A.M. Best views the captives’ management and corporate strategy as a strengthening factor in its ratings, given the Formed in 1997, Isosceles is a Bermuda licensed insurance group’s conservative underwriting, operational goals and company holding a Class 3 insurance license that permits transparency. A.M. Best views the captives’ enterprise risk it to issue policies of insurance to related and unrelated management practices as strong given the impact on its parties. Isosceles also operates under a private act of the conservative risk culture, defined risk controls and the opti- Bermuda Legislature entitled, “The Isosceles Insurance, mization of its capital and surplus. Other factors considered Ltd. Act, 1997,” which permits it to establish and operate in A.M. Best’s ratings process include, but are not limited separate accounts or cells. In addition to certain contractual to, the diversification in line of business and geography, as protections, Isosceles employs a variety of structures, com- well as the support and commitment of the parent and the mon in the insurance and reinsurance industry to mitigate group’s mission. its contractual liabilities and to protect its capital, including protection with highly rated reinsurance and acceptable A.M. Best expects the captives’ future operating perfor- collateral deposits. mance to be stable but strong, and the stable earnings 4 profile should further support the companies to control A.M. Best expects Housing Authority Insurance Group’s fu- growth and business writings, which are consistent with ture operating performance to be stable, but strong, and the the captives’ capital and surplus position. stable earnings profile should further support it in control- ling its growth and business writings, which are consistent The captives’ ratings are not expected to be upgraded and/ with its capital and surplus position. or its outlook revised within the next 12-24 months as its operating performance and capital position have already been The Housing Authority Insurance Group’s ratings are not considered in the ratings process. However, A.M. Best could expected to be upgraded nor its outlook revised within the downgrade the group’s ratings and/or revise the outlook if its next 12-24 months as its operating performance and capital Best’s Capital Adequacy Ratio (BCAR) score declines, operat- position have already been considered in the rating process. ing performance and risk profile deteriorate, insured losses A.M. Best could downgrade the ratings and/or revise the out- deplete capital, significant changes and turnover occur in look, if the group or each individual company’s Best’s Capital its management team and/or risk management controls and Adequacy Ratio (BCAR) declines, operating performance and tolerances, or its parent’s ratings deteriorate. risk profile deteriorate, insured losses deplete capital and/or (November 15, 2013) significant changes and turnover occur in the management team and/or risk management controls and tolerances. A.M. Best Affirms Ratings of the Housing Authority (November 21, 2013) Insurance Group Members A.M. Best Affirms Ratings of Evergreen Reinsurance A.M. Best Co. has affirmed the financial strength rating of Company, Ltd. A (Excellent) and the issuer credit ratings of “a” of Housing Authority Property Insurance, A Mutual Company, Housing A.M. Best Asia-Pacific Limited has affirmed the financial Authority Risk Retention Group and their subsidiary, Housing strength rating of A (Excellent) and issuer credit rating of “a” Enterprise Insurance Company (together known as the Hous- of Evergreen Reinsurance Company, Ltd. (ERCL) (Bermuda). ing Authority Insurance Group). The outlook for all ratings is The outlook for both ratings is stable. stable, and all companies are domiciled in Burlington, VT. The ratings reflect ERCL’s strong risk-adjusted capitaliza- The ratings reflect Housing Authority Insurance Group’s tion, track record of favorable operating performance and excellent capitalization, very strong operating results, leading prudent risk management. The ratings also recognize ERCL’s position and proven expertise in the niche public housing role in providing insurance/reinsurance solutions as the authority market. A.M. Best deviated from its “Rating Members pure insurance captive of Evergreen Group, a Taiwan-based of Insurance Groups” criteria in regard to certain ownership international logistics and transportation conglomerate with limitations, which relate to the existence of a risk retention a core business focus on marine and aviation. group within the Housing Authority Insurance Group. ERCL’s proven quality book of in-house business, in con- Partially offsetting these positive rating factors is the junction with the release of prior year reserves, contributed group’s concentration of risk in the public housing author- to favorable underwriting results over the past few years. ity sector, which magnifies the impact of market cycles and The company’s investment in fixed income assets (mainly public policy and legislative changes. fixed deposits) has consistently generated positive interest income to support its operating earnings. The Housing Authority Insurance Group provides property and liability coverages to public housing authorities and As an integral part of Evergreen Group’s overall risk man- their affiliated operations throughout the United States. agement framework, ERCL plays a key role in managing While retaining a large percentage of its member insureds the group’s risk through a prudent reinsurance arrange- and regularly adding new members, the group maintains ment and risk control capabilities. Management performs a a market share of about 40% of this segment on a per unit regular review of its net retained limit by business lines to basis. With its solid operating performance, Housing Author- ensure that risk exposures are falling within a manageable ity Insurance Group has progressively built up its surplus level relative to its capitalization. through retained earnings as its underwriting leverage is very low. The group’s underwriting results remain strong Offsetting rating factors include the potential capital de- due to its focused and disciplined underwriting approach mand from Evergreen Group’s subsidiaries and its signifi- and conservative reserving. Over the years, it has increased cant gross exposure to marine and aviation claims. None- rates when appropriate and withdrawn from problematic theless, these risks are protected by reinsurance facilities accounts and lines of business, such as workers’ compen- supported by a panel of high quality reinsurers. sation. In addition, Housing Authority Insurance Group’s operating performance benefits significantly from effective While positive rating actions for ERCL are unlikely in the enterprise risk management, its tax efficient structure and near term, negative rating actions could occur in the event strong client relationships, which are supported by a num- of a continued adverse operating performance and/or a ber of customized programs and services. The ratings also significant decline in its risk-adjusted capitalization. In ad- recognize management’s conservative operating strategy dition, deterioration in Evergreen Group’s credit profile of consistent with the member insureds’ expectations. could negatively impact ERCL’s ratings.

The group maintains a conservative investment portfolios Ratings are communicated to rated entities prior to pub- and utilizes reinsurance prudently. lication, and unless stated otherwise, the ratings were not 5 amended subsequent to that communication. The ratings reflect AGIC’s adequate risk-adjusted capital- (November 21, 2013) ization, consistently favorable operating performance and sound risk management capabilities. Also inuring to the A.M. Best Withdraws Ratings of National Contractors ratings is incorporation of a favorable business plan, which Insurance Company, Inc., A RRG is used as a basis for the profitability and liquidity metrics of the rating. A.M. Best Co. has downgraded the financial strength rating to B- (Fair) from B (Fair) and issuer credit rating to “bb-” Partially offsetting these positive rating factors are expo- from “bb” of National Contractors Insurance Company, Inc., sure to large losses due to the limits offered on its policies, A RRG (NCIC) (Bigfork, MT). The outlook for both ratings is limited market scope/business profile, product mix and negative. Concurrently, A.M. Best has withdrawn the ratings dependence on third parties for processing, servicing and as the company has requested to no longer participate in administration. A.M. Best’s interactive rating process. Additionally, the ratings recognize the AGIC’s excellent busi- The rating actions reflect NCIC’s erosion in policyhold- ness position and relationship with its parent, AES Corpora- ers’ surplus and risk-adjusted capitalization through the tion (AES Corp.) [NYSE: AES], a global power company that third quarter of 2013. The surplus decline is attributable owns a diverse and growing portfolio of electricity genera- to a single claim, which fell outside of NCIC’s reinsurance tion and distribution businesses operating in 21 countries. program. Although the company expects the claim to be AGIC insures the global property and business interruption resolved in its favor, the effect of a single large claim on coverage for AES Corp., its subsidiaries and affiliates. The NCIC’s capitalization reflects the vulnerability of its overall program is fronted by AIG Europe Ltd. Somewhat offsetting financial position. these positive rating factors is the company’s sole depen- (November 23, 2013) dency on the parent company’s business opportunities for its growth prospects. A.M. Best Affirms Ratings of Noble Assurance Company AGIC has consistently produced profitable net operating A.M. Best Co. has affirmed the financial strength rating of income resulting from favorable underwriting experience A+ (Superior) and issuer credit rating of “aa-” to Noble As- and investment income in each year of the past decade. Over surance Company (Noble) (Burlington, VT). The outlook the past five years, it has exhibited significant growth in total assigned to both ratings is stable. assets and policyholders’ surplus despite dividend payments each year of the same period totaling $42.1 million to its par- The ratings and outlook reflect Noble’s demonstrated ent/sole shareholder and additional $20 million distributed in strong capital adequacy, stable earnings and consistent early 2013. Nonetheless, A.M. Best will closely monitor quar- surplus growth as evidenced by continued surplus lev- terly performance of AGIC against its stated operating plan. els through 2013 and projections beyond. The company benefits from intensive risk management processes as The ratings further consider the extensive experience and a captive insurance company for Royal Dutch Shell plc level of commitment on the part of its parent, whose man- and its subsidiaries. Noble is managed by a strong captive agement incorporates the captive as a core element in the manager and benefits from highly integrated management overall risk management program of AES Corp. and utilizes involvement within the Royal Dutch Shell risk manage- the captive as an integral part in this process. AES Corp. ment framework. One hundred percent of the risk taken continually evaluates the use of AGIC for other risk manage- by Noble is ceded to Solen Versicherungen AG (Solen), a ment objectives of the group as they arise. subsidiary of Royal Dutch Shell. The company’s ratings are not expected to be upgraded Solen is well capitalized and has demonstrated consistently and/or its outlook revised within the near term as its oper- growing metrics within the past few years. As such, A.M. ating performance and capital position have already been Best has assessed the risk-adjusted capital strength on a considered in A.M. Best’s ratings process. Conversely, any combined Noble/Solen basis and found capital adequacy to material adverse deviations with regard to management, be strong. Positive underwriting returns and a conservative earnings, capitalization or risk profile could potentially un- investment strategy have contributed to strong risk-adjusted dermine the stability of the company’s ratings. In addition, capitalization as measured by Best’s Capital Adequacy Ratio. deterioration in the credit profile of AES Corp. could impact AGIC’s ratings. Noble could experience rating changes, both positive and (December 21, 2013) negative, if there is a material change in its risk-adjusted capitalization, and/or that of Solen or Royal Dutch Shell. A.M. Best Assigns Ratings to Transneft Insurance (December 17, 2013) Company, JSC

A.M. Best Assigns Ratings to AES Global Insurance A.M. Best Europe - Rating Services Limited has assigned a Company financial strength rating of B+ (Good) and an issuer credit rating of “bbb-” to Transneft Insurance Company, JSC (Trans- A.M. Best Co. has assigned a financial strength rating of neft) (Russia). The outlook assigned to both ratings is stable. B+ (Good) and issuer credit rating of “bbb-” to AES Global Insurance Company (AGIC) (Burlington, VT). The outlook The ratings reflect Transneft’s supportive level of risk-adjust- assigned to both ratings is stable. ed capitalisation and the strong operating performance of 6 business derived from its former parent, OAO AK Transneft, company publicly traded on the Panama stock exchange. the largest oil transporter in Russia. The ratings also con- The outlook for all ratings is stable. sider Transneft’s acquisition by SOGAZ Insurance Company OJSC (Sogaz) during the fourth quarter of 2013. The ratings reflect ASSA’s continued excellent operating results, favorable capitalization and strong business profile. In December 2013, Sogaz completed its purchase of a ASSA maintains a well-diversified book of business that 98.91% share in Transneft. The remaining shares are held by includes both property/casualty and life/health products. OAO AK Transneft. Under the ownership of Sogaz, Transneft will operate as a separate subsidiary until at least 2016. In 2013, ASSA continued its strong underwriting and oper- Thereafter, Transneft’s operations are expected to be fully ating profitability, which it received in part from favorable consolidated into the Sogaz group. Although uncertainty overall earnings. The company has a proven track record remains regarding the legal entity in which Transneft’s out- of solid operating earnings, a superior capital position standing liabilities will remain after 2016, Sogaz is expected and extensive local market knowledge. Additionally, the to support Transneft’s policyholders’ obligations. improved operating environment in recent years has outweighed the company’s concentration and regulatory Transneft maintains a limited business profile as the former concerns. ASSA also benefits from established risk man- captive insurer of OAO AK Transneft, with this business agement systems and strong reinsurance programs across expected to account for approximately 65% of gross writ- most lines of business. ten premium in 2013. Over the next two years, Transneft will continue to underwrite captive risks derived from its Partially offsetting these positive rating factors is ASSA’s risk former parent and develop its open-market portfolio, com- concentration in a geographically limited insurance market, prising a range of retail and commercial product offerings along with operating in a country that A.M. Best considers targeted at the employees and business associates of OAO to have an elevated level of country risk compared to ASSA’s AK Transneft. ratings. Furthermore, the Panamanian insurance market is becoming increasingly competitive as local and large out- Transneft’s risk-adjusted capitalisation is maintained at a side insurers continue to compete for market share. strong level, reflective of its low net underwriting leverage. The company’s balance sheet strength is enhanced by the Positive rating actions could occur if ASSA maintains its high credit quality of its reinsurance panel and a conser- consistently strong underwriting performance and long- vative investment portfolio of cash and cash equivalents. term profitability in conjunction with an upgrading of Transneft has exposure to a small number of domestic Panama’s country risk tier. Negative rating triggers could banks, with the top four holding 70% of the company’s occur if there were a significant decline in ASSA’s risk-based investments. However, this risk is partly alleviated by the capitalization, sustained adverse operating performance or a secure credit profile of these institutions. downgrading of Panama’s country risk tier.

Transneft has a proven track record of generating strong op- The ratings of Lion Re acknowledge its good capital posi- erating results, as demonstrated by a five-year average return tion, conservative operating strategy and explicit parental on net earned premiums of 26%. Overall earnings are reliant support. The ratings also consider Lion Re’s strategic role as on the performance of captive business, which contributed a captive reinsurer of ASSA Tenedora, S.A. the majority of the RUR 1.7 billion pre-tax profits reported in 2012, based on international financial reporting standards. Also inuring to Lion Re’s ratings is its sound business plan, good underwriting performance and liquidity measures Positive rating actions are unlikely at this time. Negative during its first three years of operation. Lion Re operates as rating actions could occur if there was a decline in Trans- a Bermuda-based reinsurer focused on writing a combina- neft’s financial profile, particularly due to its expansion into tion of property/casualty and health and group life business the domestic insurance market. Additionally, an unexpected from affiliated insurers. change in Transneft’s capital management strategy or deterioration in Sogaz’s credit profile could result in negative The ratings of RAM Re reflect its adequate capitalization, rating actions. explicit parental support and strategic role as an alternative (December 21, 2013) risk transfer vehicle.

A.M. Best Affirms Ratings of ASSA Compania de RAM Re’s ratings also reflect a sound business plan, upon Seguros, S.A., Lion Reinsurance Company Limited and which the profitability and liquidity measures of the ratings are Reaseguradora America SPC Ltd based. The ratings are supported by an amount of capital that meets A.M. Best’s requirements for newly formed companies A.M. Best Co. has affirmed the financial strength rating (FSR) as measured by Best’s Capital Adequacy Ratio (BCAR). RAM of A (Excellent) and issuer credit rating (ICR) of “a” of ASSA Re was incorporated on January 2013 and licensed by the Compania de Seguros, S.A. (ASSA) (Panama City, Panama). Cayman Island Monetary Authority (CIMA) as a Class B Insurer under Section 4 of the Law. RAM Re will write reinsurance A.M. Best also has affirmed the FSR of A- (Excellent) and business mainly with ASSA Compania Tenedora, S.A.’s operating ICRs of “a-” of Lion Reinsurance Company Limited (Lion Re) subsidiaries in Panama, Costa Rica, Nicaragua and El Salvador. (Bermuda) and Reaseguradora America SPC Ltd (RAM Re) (Cayman Islands). All companies are ultimately owned by RAM Re will underwrite bancassurance, property/casualty Grupo ASSA, S.A. (Grupo ASSA), a financial services holding (excluding or managing catastrophe cover under limited 7 conditions), credit and debit card fraud, unemployment Methodology Sources benefits and short-term group life related products. A.M. Best remains the leading rating agency of alternative These positive rating factors are partially offset by RAM Re’s risk transfer entities, with more than 200 such vehicles execution risk due to its unproven start-up nature. rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on Drivers that could lead to an upgrading of the ratings and/ the captive and alternative risk transfer insurance market, or a positive outlook for Lion Re and Ram Re are stable please visit http://www.ambest.com/captive. underwriting performances, as well as reduced overall net exposure over the next few years and successful implemen- The methodology used in determining these ratings is Best’s tation of their business plans. Factors that could lead to a Credit Rating Methodology, which provides a comprehen- downgrading of the ratings and/or a negative outlook are a sive explanation of A.M. Best’s rating process and contains material loss of capital from either claims or investments, a the different rating criteria employed in the rating process. reduced level of capital that does not support their ratings Best’s Credit Rating Methodology can be found at http:// or an increase in net retention. www.ambest.com/ratings/methodology.

ASSA, Lion Re and Ram Re’s ratings are tied to A.M. Best’s Domiciles internal assessment of Grupo ASSA; therefore, an unfavorable operating performance or material loss of capital could Bermuda Agrees to Help the US Implement FATCA result in changes to these captives’ ratings. (January 17, 2014) The United States and Bermuda have entered into an agreement to implement the Foreign Tax Account Compliance A.M. Best Assigns Ratings to Ocean International Act, which requires foreign financial institutions to submit Reinsurance Company Limited annual reports about U.S. account holders to the IRS.

A.M. Best Co. has assigned a financial strength rating of Starting next year, foreign insurance companies and other A- (Excellent) and an issuer credit rating of “a-” to Ocean financial institutions will be required to register with the International Reinsurance Company Limited (Ocean Re) IRS and report offshore accounts worth more than $50,000. (Barbados). The outlook assigned to both ratings is stable. Companies that fail to comply will face a 30% withholding tax on certain U.S.-based payments. The law is part of an IRS The ratings for Ocean Re are based on its solid risk-adjusted crackdown on offshore tax shelters. capital position, favorable operating performance and liquidity measures as well as its low operating cost struc- The requirements were supposed to go into effect on Jan. ture. The ratings also consider the company’s experienced 1. But the IRS delayed the law’s implementation until July 1, management team, which is familiar with the risks and the 2014. region Ocean Re operates in. The agreement with Bermuda signals the country will help These strengths are partially offset by Ocean Re’s limited the United States to enforce the FATCA and that regulators market position and financial flexibility as a result of its will work with companies to foster compliance and to pro- private ownership structure. The outlook is based on A.M. mote transparency. Best’s expectation that the company will maintain its strong capitalization and operating performance. Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, praised the Ocean Re focuses on reinsurance and offers a diversified agreement. product mix in several countries throughout Latin America. The company also offers facultative programs that are fully “I would like to applaud both the governments of Bermuda funded to the expected ultimate losses by the company’s and the United States for working together to improve clients. international tax compliance and ultimately strengthen the economies of both nations,” said Kading. “As the largest sup- Ocean Re’s management is committed to growth in capital, plier of catastrophe reinsurance to U.S. insurers, Bermuda a well-diversified investment portfolio and a focus on its has a strong relationship with the United States that has long-term stability. A.M. Best anticipates that Ocean Re will only been reinforced through this agreement.” continue to report profitable underwriting results and will maintain solid capitalization levels. According to ABIR, Bermuda’s insurers and reinsurers have contributed an estimated $35 billion in catastrophe claims Although the outlook for Ocean Re’s ratings is stable and payments to their U.S. clients over the past 12 years. The or- the ratings are not expected to be upgraded nor its outlook ganization said that figure includes $2.5 billion in response revised within the next 12-24 months (since its performance to the World Trade Center tragedy, $17 billion for Hurricane and capital position have already been considered in the rat- Katrina and $2 billion following tornado outbreaks from ings), A.M. Best could downgrade the ratings and/or revise the 2010 to 2012. It also includes the estimated $3 billion in re- outlook if the company’s Best Capital Adequacy Ratio (BCAR) ported losses by Bermuda’s reinsurers for Hurricane Sandy. declines, its operating performance and risk profile deteriorate, or losses from claims or investments erode capital. Even with the delay to FATCA, many industry representa- (January 28, 2014) tives have said insurers may face higher costs in trying to 8 meet the law’s mandates --- costs that would only increase if vision. Gibbs stepped into that role on Jan. 6 (Best’s News they fail to comply. Service, Jan. 3, 2014).

Some fear that additional reporting costs may be only the Bermuda also was also recently approved by the National beginning of the FATCA’s effect. Because of the way the law Association of Insurance Commissioners to allow reinsurers is structured, it could have a substantial impact on captive licensed and domiciled in the country to be certified and insurance entities and foreign reinsurers. gain approval to post less collateral as part of loosened reinsurance requirements set by the NAIC, starting Jan. 1 (Best’s In April, PricewaterhouseCoopers issued a report warning News Service, Dec. 23, 2013). captive insurance companies could be treated as foreign (By Jeff Jeffrey, Washington Bureau manager: financial institutions for FATCA purposes because, in prac- [email protected]) tice, captive insurance companies are seldom licensed to (January 21, 2014) transact insurance business in a particular state within the United States. North Carolina Works to Position Itself as Long-Term Captive Competitor However, most property/casualty companies are unlikely to be affected by FATCA thanks to a lobbying effort led by the North Carolina begins its quest as a captive insurance industry to limit the number of P/C companies that qualify domicile with the goal to be taken seriously as a long-term as FFIs (Best’s News Service, Sept. 11, 2013). market competitor. (By Jeff Jeffrey, Washington Bureau manager: [email protected]) The North Carolina Captive Insurance Act creating the new (December 21, 2013) captive domicile was signed in June, moving unanimously through both Assembly chambers (Best’s News Service, June Number of New Bermuda Insurers Surges by 72% to 91 24, 2013). North Carolina state regulators began accept- in 2013 ing applications in October and Insurance Commissioner Wayne Goodwin hailed the new law creating the domicile Ninety-one new insurance companies registered to do busi- as state-of-the-art. The law is based mostly on a Tennessee ness in Bermuda in 2013, marking a 72% surge in registra- law that had been one of the more recent passed, said Alex tions since 2012, according to a annual insurer registration Webb, chairman of the North Carolina Captive Insurance statistics compiled by the Bermuda Monetary Authority. Association. The law came after years of effort by supporters to convincing lawmakers of the economic opportunity In 2012, the BMA registered 53 new insurance companies. captives provide, Webb said.

The new registrants came from both the traditional and Initially, North Carolina will seek one or two large captives “fast-growing” alternative risk transfer sectors, the BMA said and numerous smaller ones during its first year, said De- in a statement. partment of Insurance spokesperson Kerry Hall. Webb said the first few captives could be announced during a Dec. The new companies registered in 2013 covered all classes 10 NCCIA seminar to introduce the new law. of insurer: there were 24 new captives, 16 commercial insurers and a record 51 special purpose insurers. This com- Talks with companies have been ongoing, Hall said. North pares to 12 new captives, 14 commercial insurers and 27 Carolina regulators are sharing the state’s regulatory exper- SPIs being recorded the previous year, BMA said. tise, a desire to work with companies and are demonstrating how competitive the state’s captive law is compared to BMA Chief Executive Officer Jeremy Cox said in a statement other domiciles. “We have received many complimentary that increase in the number of new registrants demon- comments from various captive managers, and there is strates the “continued relevance” of Bermuda as a jurisdic- strong interest on the part of various parties on either form- tion as the market seeks diversification in risk transfer, with ing captives in North Carolina or re-domesticating them in alternative products increasingly complementing traditional our state,” Hall said. reinsurance. Duke Health System is among NCCIA’s desired targets. Webb “The new registrations include significant firms in the said the company has an offshore captives arrangement, but traditional reinsurance space, including a Class 4 reinsurer,” that NCCIA is trying to persuade the company to move its Cox said. “We also saw additional core business in the form domicile to North Carolina. of the 24 new captives registered during the year, building further on Bermuda’s leadership position in that sector.” Starting successful captive domiciles involves early prepa- ration and work toward a long-term effort, said Captive Cox also noted the record number of SPIs registered last Insurance Companies Association President Dennis Harwick. year. By the end of 2013, out of the $21 billion of global ILS “The real work begins in developing the experience and the issuance, $9.2 billion was sponsored by Bermuda-based SPIs, resources to make it a viable captive domicile,” Harwick said. representing 41% of the worldwide stock of ILS, according to BMA statistics. Hall said one of the competitive features of the new law is the elimination of fees usually paid up front by companies The BMA recently saw former Validus Holdings Ltd. Execu- looking to locate in a domicile. Webb told Best’s News Ser- tive Andrew Gibbs take over as director of insurance super- vice that typically the fees captives pay to locate in states 9 are roughly $3,000 to $5,000 annually and are as little as This article was first published in BestWeek Americas. $1,500 to $2,000 per year in offshore jurisdictions. (By Thomas Harman, associate editor, BestWeek: [email protected] The DOI appears prepared to be flexible in helping captives (November 28, 2013) and Webb said the law’s low upfront cost --- an obstacle in some states --- will help. “It’s developed as well as I think it Newly Approved Captive Manager Has Three Captive should,” Webb said. Applications Already Pending in North Carolina

While states such as New York have been critical of domi- North Carolina’s Department of Insurance has approved ciles allowing special purpose vehicle captives, Webb said six captive managers to operate in the state since the state that to date it appears North Carolina is not restricting became a domicile in June and started accepting applica- any types of captives. Hall said New York’s criticism is not tions in September. impacting the state’s approach. “We seek to attract all types of captives,” Hall said. Martin Eveleigh, manager of Atlas Insurance Management --- the state’s newest captive manager --- told Best’s News But having a law that’s desirable is often not enough, and Service he has three captive insurer applications pending states need to either find or develop experienced captive that should be before the DOI as soon as next week. regulators who understand the market. The recent surge in states seeking to become captive insurance domiciles has It joins AIG Insurance Management Services Inc. of Colum- put a premium on regulators with experience working with bia, S.C.; Ascension Captive, LLC, based in Atlanta; JadeRisk, the industry (Best’s News Service, Oct. 16, 2013). States LLC of Grapevine, Texas; Marsh Management Services of across the country are working to differentiate themselves Burlington,Vt.; and Synergy Captives Strategies, based in Las as they try to convince captives to set up shop within their Vegas, as new captive managers in the state, according to borders. Industry experts said the reputation of a state’s the Department of Insurance. regulators can be a deciding factor. The new approvals stem from the signing of the North Texas and North Carolina became the most recent states to Carolina Captive Insurance Act that made the state a cap- pass captive domiciliary legislation this summer, and both tive domicile. The North Carolina law is based mostly on a are working to hire captive regulators. In August, one of the Tennessee law that had been one of the more recent passed largest captive domiciles in the country saw its top captive and followed years of effort by supporters to convince law- regulator abruptly resign. The Hawaii Insurance Division an- makers of the economic opportunity captives can provide nounced that Sanford Saito would serve as interim deputy (Best’s News Service, Nov. 27, 2013). commissioner and captive insurance administrator, succeed- ing George Sumner III (Best’s News Service, Aug. 28, 2013). Before the new law was signed, North Carolina captive insurance managers either had to be domiciled in another Harwick said states such as North Carolina face a challenge state or go offshore. Atlas, based in Charlotte, N.C., is one in requiring regulatory experience in the captive realm. “It of those captive insurers with headquarters in state but can be done, but it’s something that takes some time and with offices in offshore locales such as the Cayman Islands. commitment,” he said. Captive managers typically view new Eveleigh’s company also is authorized to manage captives in domiciles cautiously, Harwick said, and avoid them initially. six jurisdictions and is actively doing so in Washington, D.C., “They want to deal with strong, experienced regulators,” he Delaware, Utah and soon will be doing so in North Carolina. said. “They don’t want any surprises.” Eveleigh said North Carolina will prove attractive to com- Finding good captive regulators may be hard to come by for panies looking to form captives because premium tax rates new domiciles, Harwick said, because such regulators must are competitive with those of other states and the new law be dedicated solely to captive regulation. “The models for has fewer capital requirements. Also, it allows smaller cap- the traditional side [of insurance regulation] don’t fit the tive insurers a waiver of an annual audit requirement that captives side,” he said. Eveleigh said would serve as a cost-saving measure. Also, he said the DOI is not mandated to examine a captive and Captive managers not only want dedicated regulators who said the state appears ready to examine captive insurers are specifically geared to deal with captives, but they want “only when there seems to be a need to do so.” The DOI has to know that the domicile itself is going to be pushing for shown a desire to be flexible and business-friendly, he said. captive development for the long term. Alex Webb, chairman of the North Carolina Captives Insur- Hall said the main challenge for her state is in competition ance Association, told Best’s News Service approval for Atlas from other active domiciles. “We are working to make sure is very important to his group because the company is most all stakeholders understand that North Carolina is in this for likely the lone global captive manager with headquarters in the long haul,” she said. the state. Webb said he notified Eveleigh about the pending legislation to allow captives in the state during a May confer- Neighboring South Carolina has had been a captive domicile ence in Charlotte. Eveleigh became involved in promoting since 2000 and has more than 150 captives. South Carolina the bill’s passage and now is helping to implement the law. recently named William “Jay” Branum its new director of captives, and he said he plans on increasing the state’s onshore “Atlas is actively encouraging other managers to apply for captive footprint (Best’s News Service, Oct. 15, 2013). approval in North Carolina,” Webb said. “With the support 10 and assistance of NCCIA, Atlas has already dealt with several office does not have a goal for new captives this year, but statutory interpretive issues before the DOI. I believe the conservatively estimates that 10-15 more captives could be results have been satisfactory.” An attempt to gain comment licensed by 2015. “We’ll be happy if it’s more than that,” she from the DOI was not immediately successful. said. Meanwhile, one of the captive office’s first jobs will be to meet with local chambers of commerce and others Eveleigh said North Carolina appears ready to court cap- to promote the opportunities offered to potential captive tive insurers and doing so will set them apart from some insurers. other domiciles. He said jurisdictions who are moving to be players in the captive industry will likely take captives While North Carolina’s captive law is similar to those in from states such as Delaware. “There’s too much going into Tennessee and South Carolina, there are some differences Delaware for that state to handle,” he said. that should allow North Carolina to attract captives, she said. These include the lack of annual fees and application Captive insurers are created and owned by a parent compa- fees, as well as no mandatory DOI examinations. Smaller ny to insure the risk of that parent, serving to cover the risk companies generating less than $1.2 million in premiums management needs of its owner or members. A statement can request a waiver of the annual audit, the decision to be from Atlas touts captive insurance as providing both tax and made on a case-by-case basis, Walker said. There are 10 cap- non-tax advantages, as well as providing coverage when it is tive managers in the state. unavailable or otherwise too expensive. “However, planning, forming and managing a captive is a complex undertaking, The people who worked with Walker’s office to have cap- which is why finding the right captive insurance manager is tives licensed were happy with the news. Alex Webb, chair- so important,” the Atlas statement said. man of the North Carolina Captive Insurance Association’s (By Thomas Harman, associate editor, BestWeek: board of directors, said Walker handled his application for [email protected]) licensing Synergy Insurance, a protective cell captive. He said (December 6, 2013) she did a great deal of work under stressful conditions and time constraints to complete the application on Dec. 31. “I North Carolina Names New Captives Director found her detailed and analytical in her review of the submis- sions, but also aware of the business necessities of certain Debbie Walker has been selected as the director of captive arrangements,” Webb said. “The cell captive was new to her insurance in North Carolina. and me, but she was timely and thoughtful in her analysis and responses.” He said his client was favorably impressed and She will be responsible for considering captive insurance appreciated Walker’s handling of the application. license applications and overseeing regulation of licensed captives in the state, according to a Jan. 13 announcement Atlas Insurance Management formed the first three cap- by the Department of Insurance. Walker told Best’s News tives licensed in North Carolina, West & Joyce Insurance Service that her message to potential captives is the DOI Co., Cade Reassurance LLC and SR Insurance Inc. “We has a firm commitment to the market and wants North quickly came to appreciate that she aims to ensure that Carolina to be a strong domicile. She said her office will captive insurance companies are prudently regulated, work with captives, managers and other providers to ensure while, at the same time, understanding that captives a good business environment while appropriately regulat- should be looked at somewhat differently from open-mar- ing captive insurers. “We’ll exercise our discretion to make ket insurers,” said Atlas Insurance Management Chairman transactions to work for them,” she said. Martin Eveleigh. “The law in North Carolina allows the commissioner discretion in a number of areas, which we Walker is a certified public accountant who has worked in regard as a positive attribute of the North Carolina captive financial regulation at the DOI for more than 20 years. She program. The exercise of discretion presents a challenge was named chief financial analyst in 2006 and had been for any regulator and we feel that Debbie Walker’s willing- serving as active captives director before her appointment. ness to listen to representations, to consider each case on “I can think of no one better equipped to take on the excit- its merits and to be clear in expressing and explaining the ing challenge of growing the captive insurance market in views of the department are exactly the qualities needed North Carolina,” Insurance Commissioner Wayne Goodwin by a captive insurance regulator.” said in a written statement. “In addition to a wealth of professional experience, Debbie Walker brings an exceptional While North Carolina will allow the XXX and AXXX life level of customer service to this position.” insurance captives that have been the focus of criticism by New York and some other states, Walker said her office has North Carolina became a new captive domicile by law in Octo- not seen any applications of that type and has yet to discuss ber. The DOI in the final days of 2013 licensed three pure cap- those with counterparts in other states. tives and a protective cell captive. The three pure captive insur- (By Thomas Harman, associate editor, BestWeek: ers are West & Joyce Insurance Co., Cade Reassurance LLC and [email protected]) SR Insurance Inc., all of which are managed by Charlotte-based (January 15, 2014) Atlas Insurance Management. The protective cell captive is Synergy Insurance Inc., managed by Synergy Captive Strategies North Carolina DOI Grants Licenses to First Four LLC, based in Las Vegas (Best’s News Service, Jan. 3, 2014). Captive Insurers

North Carolina’s neighbors, South Carolina and Tennessee, The North Carolina Department of Insurance has issued its also are busy attracting captive insurers. Walker said her first four licenses to captive insurance companies. 11 The announcement by Insurance Commissioner Wayne laws were meant to cater to a few in-state companies or Goodwin shows licenses were issued on Dec. 30 and Dec. because there is a disconnect between what the legisla- 31 to three pure captive insurers and one protected cell tors intended the bill to do and what regulators want to captive insurance company. do. “Here in North Carolina, everyone seems to be pulling in the same direction,” Eveleigh said. State regulators were The three pure captive insurers are West & Joyce Insur- encouraging and offered help to solve problems in getting ance Co., Cade Reassurance LLC and SR Insurance Inc., licenses approved. The state has approved seven captive all of which are managed by Atlas Insurance Management, managers as of Jan. 3. based in Charlotte. The protective cell captive is Synergy (By Thomas Harman, associate editor, BestWeek: Insurance Inc., managed by Synergy Captive Strategies LLC, [email protected]) based in Las Vegas. (January 4, 2014)

“North Carolina is off to a strong and promising start as Tennessee Licenses 23 Captive Insurers in 2013; a captive domicile,” said Goodwin in a statement. “With Reforms Seen as Key our state-of-the-art law and commitment to the success of captives, I am confident we will become one of the most Tennessee’s captive insurance industry boomed in 2013, desirable states in the country for the formation and re- as the number of licensed captive insurers grew by more domestication of captive insurers.” than 250%, a change state regulators attribute to legislative efforts to re-open doors to interested insurers. The captives are the first announced since the passage of the North Carolina Captive Insurance Act, which made The Department of Commerce and Insurance’s Captive Sec- the state a captive domicile effective in October. Martin tion licensed 23 new captive insurers in 2013, bringing the Eveleigh, Atlas’ chairman, told Best’s News Service the three year-end total to 32, according to the department. Of the captives his company helped form are small ones. “In the 32 companies, three have 10 protected cells within each relatively short time available, this was a great way to get captive. going,” he said. Director of Captive Insurance Michael Corbett said a 33rd Eveleigh said captives could find North Carolina more ap- captive already has been licensed during the first week of pealing because the state does not require application fees, 2014. “The growth we have seen thus far is an indicator can waive a required audit of captives’ financial statements that our formula is working,” he said in a statement. “Ten- and does not mandate annual examinations of captives. nessee has the gold standard in captive legislation, support at all levels of state government and strong leadership in North Carolina insurance regulators also appear ready to Commissioner [Julie Mix] McPeak, an easily accessible be flexible with captives, as Eveleigh said the state appears location and most importantly, a reputation for being ready to audit companies only when it believes it needs committed to thriving business, job growth and market to (Best’s News Service, Dec. 5, 2013). Specifically, there is integrity.” flexibility regarding the amount of capital that must be in place based on the captive’s size and actuarial feasibility, When the captives department was created through reform he said. legislation in 2011, there were two existing captives on the books. Corbett, upon being hired, made a commitment Alex Webb, chairman of the North Carolina Captive Insur- to add three more by June 2013, but 11 new ones formed ance Association’s Board of Directors, also was hired by by the end of 2012 and seven more halfway through 2013 Synergy Captive Strategies in early December to file the li- (Best’s News Service, July 22, 2013). cense on behalf of Synergy Insurance Inc., which has seven protective cells. Webb told Best’s News Service the DOI also Tennessee was among the first states to allow captive insur- helped solve several issues it needed opinions on before it ers, passing legislation initially in 1978. Response, however, was willing to approve the application. For instance, there was slow. But in 2011, Gov. Bill Haslam signed the 2011 were questions about the required minimum capital pre- reform legislation viewed as a primary reason for captive mium, which the law sets at a minimum $250,000. However, growth in the state. HB 2007 gave captives the ability to SCS requires captives to have 20% of the first year premium, write workers’ compensation policies directly and allowed which is more than double the amount in the new law. He the commissioner to waive a requirement that captives sell said DOI “bent over backward” to get the licenses approved. workers’ compensation policies to self-insured entities. It allowed new types of captives to be formed in the state, The new law was designed to create new revenue for North specifically authorizing one or more sponsors to form a Carolina and Eveleigh said three of the new captives being sponsored captive insurance company that could create based out of state provides evidence of the state’s attractive- one or more protected cells to insure its participants’ risk. It ness as a domicile. Eveleigh is optimistic about the likeli- also allows for special purpose financial captives, since the hood of progress in the North Carolina market, because he subject of criticism by states such as New York (Best’s News said Atlas Insurance Management alone could help form as Service, June 15, 2011). many as 10 captives during the state’s first year of activity. Further reforms passed in 2013 cut the protective cell capi- While some states have passed captive domicile legisla- tal requirement in half to $250,000 and allowed individuals tion, there are some states that have not followed through or businesses to sponsor protected cell companies, eliminat- with the work to attract business, either because the ing the requirement for a holding company. Tennessee’s cap- 12 tive law was viewed as a model that North Carolina lawmak- been aiming a lot of attention at specific types of captives ... ers approved when making its state a captive domicile. We are not allowing those. The statute does not accommo- date them,” he said. “We are encouraged by the growth of the captive insurance (By Thomas Harman, associate editor, BestWeek: sector in Tennessee,” McPeak said in a written statement. [email protected]) “Since re-opening our doors to captive insurance, our staff (January 8, 2014) has committed to making Tennessee a best-in-class onshore domicile.” She said the state offers interested captive insurers Delaware Captive Director: NAIC Proposal to Redefine an easily accessible domicile that has a booming business en- Life Captives as Multistate Insurers a Step Backward vironment, as well as strong legislative and industry support. (By Thomas Harman, associate editor, BestWeek: The move by the National Association of Insurance Com- [email protected]) missioners to consider defining some captives as multistate (January 9, 2014) insurers is a step backward, said Steve Kinion, director of the Bureau of Captive and Financial Insurance Products at New Domicile Texas Begins Lining Up Captive Insurers the State of Delaware. He spoke recently with AMBestTV about the pitfalls of this proposal, the impact of the growth Several captive insurers have expressed preliminary interest in captive domiciles and new captive legislation on tap for in relocating to Texas, even before final regulations imple- 2014 in Delaware. menting the new state law allowing captives takes effect. Video of the interview can be seen at http://bcove.me/vo- The Department of Insurance has had good preliminary myxr4n. discussions with as many as a half-dozen potential new parties who have expressed interest via “preliminary draft Q: I was hoping you could tell us a little bit about a propos- filings,” said Kevin Brady, deputy chief of staff at the Texas al to classify life insurance captives as multistate insurers. Department of Insurance. Full commitment, however, may wait until the DOI’s rule implementing the captive law is A: That proposal arose this past week at the NAIC meeting, completed in coming weeks, he said. which was concluded a couple of days ago. That proposal would redefine, as you said, multistate insurance companies Texas last year became the 31st state to become a cap- for NAIC accreditation purposes. Specifically for life insur- tive domicile (Best’s News Service, June 6, 2013). The state ance company-owned captive insurance companies. has since issued a rule to implement the law that recently completed a public comment period, with minimal changes Those types of captives, reinsured, XXX, mostly-called A- expected. XXX redundant reserves. Of course, they’ve been a topic of controversy within the NAIC community. We believe The new law was sought by companies who were domi- that this measure to bring this matter for the F committee ciled outside the state and looking to relocate into Texas. to redefine multistate insurance companies is truly a step While application fees for captives will cost 1,500 through backward. It is a step backward because there was already 2018 and a 0.5% premium tax is placed on all business writ- a predetermined process, a path, that the NAIC had decided ten, the commissioner can waive the fees and taxes for a upon, in regard how to address captive insurance company two-year period for companies domiciled outside the state issues. Specifically, again, life insurance company-owned but looking to relocate. captives. Now we’re deviating from that path, which is very unfortunate. The new law allows captives to insure the operating risk of entities that include the captive’s affiliates. In Texas, captives Q: What kind of negative impact would that have on these can provide reinsurance to insurers covering a captive’s af- captives? filiates, including the affiliate’s employee benefits plan, liability insurance and workers’ compensation. Reserve minimum A: The negative impact would be this: If all of the weight of for captives is set at $250,000. the NAIC accreditation standards were placed upon captive insurance companies, they would no longer be captive The main question concerning the new law is whether insurance companies. They would simply be commercial enough flexibility will exist in order to attract captives reinsurance companies. already formed by Texas companies to re-domesticate, said Joe Woods, vice president of state government relations for The Delaware General Assembly, just like legislatures in about the Property Casualty Insurers Association of America. 30 other states, specifically haven’t adopted laws to state that captive insurance companies should not be treated legally The new law, Brady said, requires parent companies “to and have applied legally, all of the regulatory criteria that a have significant operations in Texas.” The new law’s passage commercial insurance company must abide by. served as a signal to existing out-of-state captives that they might be able to get their applications completed quickly, at There’s a reason for that. Captives are very viable risk trans- least compared to an entirely new captive that is without a fer. They call them “alternative risk transfer tools,” as well as track record of performance, Brady said. “financing tools.”

Brady told Best’s News Service the new Texas law will not In the regard of life insurance, specifically term life and uni- allow the creation of XXX or AXXX captives. “New York has versal life products, where there is an excess reserve due to 13 the regulations. There’s an economic reserve, Meg, and then tive issues that had arisen. That working group has been in an excess reserve. The captives reinsure the excess reserve, existence for about six months, yet not one state has been and it’s a very important part of the life insurance indus- appointed to that working group. It’s like having a blue- try. What it also does is this, and this is an issue the NAIC ribbon panel without any blue ribbons in it. has not yet addressed but needs to address: These class of captives help make term life and universal life insurance Commissioner Stewart’s position is this: We need to get the products more affordable for consumers. members of that working group appointed so that we can address these captive insurance issues and not have to deal The question ultimately may become, for the commissioners, with issues such as redefining ‘multistate insurance com- “Do I take a vote to change the definition of multistate insur- pany’ for the F-committee purposes. ance company? If I take that vote, the consequence of it, re- member Newton’s third law, for every action there’s a reaction, Let’s get the captive working group formed. Let’s populate the consequence is this. I will make, for my consumers in my it with regulators who understand captive insurance, so that state, my citizens, term life insurance products and universal we can finally address this problem. life insurance products more costly, and less affordable.” I can tell you now. Delaware certainly wants to be a mem- Why would commissioners want to do that, at a time when ber of the Captives Working Group. As a matter of fact, many Americans are not buying life insurance? As a matter Delaware would be happy to take a leadership role in that of fact, why would commissioners simply want to increase working group, to either chair it or serve as vice chair. Dela- the cost of life insurance, or any other form of insurance, ware today, under Commissioner Stewart’s leadership, is the if it is unnecessary to do so? That’s a policy question that worlds’ 10th-largest and the 3rd-largest captive domicile in insurance commissioners will have to ask themselves if they the United States. ever have to take this vote. Hopefully, from Delaware’s perspective, we won’t, because we want to get the NAIC back We believe we have some very good knowledge and some on the path that it had selected earlier this year. If I may, I’d very good experience, in terms of forming and licensing like to address that path. and regulating captives.

The NAIC spent the better part of about 12 to 18 months Q: What are your thoughts on the number of new captive drafting what’s called the “Captive and Special Purpose Vehi- domiciles coming online? cle White Paper.” That white paper misses some key points, specifically the affordability issue I just mentioned, in regard A: It seems like every week we have a new captive domicile. to how term life and universal life products are less expen- Certainly, the captive insurance is a growth industry and I sive and more affordable for consumers, because of the use welcome it from that perspective. There are some interest- of these types of captives. Unfortunately, the white paper ing trends in regard to new domiciles coming on board. Not did not address that issue. just in terms of states, but we’re also seeing Indian tribes becoming captive insurance domiciles. The most recent be- So when the white paper finally filtered its way to the top ing the Delaware Indian Tribe of Oklahoma. and made it up to the Joint and Executive Plenary Com- mittee to be voted upon, every insurance commissioner What they have done earlier this year is opened a domi- but one voted for its adoption. That one single insurance cile. They’re competing for a particular type of insurance commissioner was Insurance Commissioner Karen Weldin captive, that being what’s called the “FNI,” the finance and Stewart, of Delaware. The reason Commissioner Stewart did insurance captive that is often used by the auto dealership not vote to adopt the white paper was for the reasons I said. community. Commissioner Stewart does not want to make life insurance less affordable for Delawareans. Not just Delawareans, the What I have seen is they’re directly competing with offshore citizens of any other state or territory. That’s her position. domiciles, like the Turks and Caicos, to attract those forms of That’s why we voted “No.” captive. It’s something completely new. It raises new issues in terms of captive insurance, such as sovereign immunity. Think We would like to have the white paper re-opened to ad- about it, a captive on tribal lands. It’s being, how should I say dress this. It is timely now to do so, and hopefully within it? It’s offshore, but being onshore. One way of looking at it. the following NAIC meetings, that affordability issue can be addressed. Another interesting trend, and I’ve seen this in the publica- tions that A.M. Best has, such as BestWeek, is as more domi- Let me talk about the path, as I mentioned a moment ago. ciles are created, there is a shortage of captive insurance The white paper says that the NEIC should develop some regulators. Not speaking from a self-interest perspective, but uniformity, some guidelines in terms of addressing captives. it is true. Then also, earlier this year in the summer, the NAIC Joint and Executive Plenary, as we call it, decided to adopt what I’ve been captive insurance director in Delaware for about is called the “Principle-Based Reserve Taskforce Implementa- four and a half years, almost five. These captives are regu- tion Plan,” or the “PBR Implementation Plan.” lated differently, because the laws are different. You have to have experience and get a feel and understanding of how The PBR Implementation Plan created what is known as the this industry works. I think I’m there, although there are “Captives Ex,” “Ex” standing for “Executive Working Group.” new ideas in the captive insurance that are proposed to me The Captives Working Group was designed to address cap- every day. It is an experience issue. 14 As director I’ve licensed over 600 risk-bearing entities on However, 18 states have adopted regulations that allow the category of captives. Some are very small, where they reinsurers to post less than 100% collateral. have maybe half a million dollars or less in annual premium. Some are very large, where the annual premium’s in the Reinsurers, including Swiss Re, have said the lack of unifor- hundreds of millions of dollars. It runs the gamut from my mity can create confusion in the marketplace and can affect experience level, but that experience is hard-earned. business decisions.

Q: Speaking of Delaware, it’s always evolving its captive The FIO report noted that the issue has taken on new signif- legislation. Can you tell us what’s on tap for 2014? icance because of the growing role non-U.S. reinsurers play a large role in the market. Foreign reinsurers account for at A: Yes, I’d be happy to. We will be submitting a captive insur- least 58% of the reinsurance premium volume that is ceded ance bill for the next session of the Delaware General As- by U.S.-based insurers, FIO said. sembly. It will include a number of facets. One very interesting one is, we’re going to purposefully define that captive “It’s possible that an international agreement could assist insurance companies may become members of the federal the NAIC or the states in achieving the uniform national home and loan bank system. approach that they’ve been working toward in this area of regulation,” Preston said. “And it may help them to achieve it That’s important from the perspective that we want captive sooner than they would be able to on their own.” insurance companies, as well as commercial companies that qualify for home loan bank membership and are good financial According to the FIO report, critics of the current system candidates, to be able to access home loan bank borrowings. have said that a determination of whether a reinsurer is able to post collateral should be more sensitive to “evolving” risk- Home loan banks offer a tremendous amount of liquidity based considerations. to insurance companies. Liquidity in terms of the cost of borrowing. For instance, home loan bank rates, in terms Critics also argue that regulators should be able to take into of insurance company borrowing, are typically pegged at account the strengths of capital regimes in reinsurers’ home LIBOR, which I believe for five-year money yesterday was jurisdictions, the impact of collateral requirements on rein- about 58 basis points. surance capacity and the increased costs for insurers and consumers that come with higher collateral requirements. That’s a very good source of funds in time of need for an insurance company, and we want captives to be able to take “There is a lot to be done in this area, so the dialogue that advantage of that as well. will be created by the FIO report is a good one,” Preston said. (By Meg Green, senior associate editor, BestWeek: [email protected]) He said Swiss Re supports mutual recognition of a reinsur- (January 9, 2014) er’s domestic regulatory regime.

Captive Developments The FIO report also recommended that states develop uniform and transparent standards for the use of reinsurance Swiss Re: FIO Report Includes Positive captives. Recommendations on Reinsurance Collateral Agreements, Captive Transparency Over the past 30 years, the use of captives has grown from less than 1,000 captives in 1980 to more than 5,000 operat- The Federal Insurance Office’s recommendation that the ing worldwide today, the report said. Treasury Department and the U.S. Trade Representative pursue international covered agreements for reinsurance col- FIO said there are two basic concerns with reinsurance lateral requirements could help state regulators derive more captives that are increasingly prevalent in the life insurance uniformity in the regulation of reinsurers, said Don Preston, business. who heads Swiss Re Americas’ government affairs division. The first is that reinsurance captives allow an insurer to The FIO said in a recent report on ways to modernize the receive credit against its reserve and capital requirements U.S. insurance regulatory system that Treasury and USTR by transferring risk to the captive even if the captive is not should pursue covered agreements that are modeled on the bound by consistent capital rules across the states. Second, National Association of Insurance Commissioners Credit for there is a lack of transparency for captive oversight from Reinsurance Model Law and Regulation. state-to-state, the report said.

Preston said that while many states have made “very good Preston said Swiss Re supports greater transparency for re- progress” on updating regulations affecting reinsurance insurance captives because often companies do not report collateral, the industry believes there is additional room for those transactions on financial statements. improvement to ensure there is consistency among regulatory systems across the country. Information about a company’s use of reinsurance captives may be available online under current statutory filing Currently, most states require reinsurers based outside the requirements. But Preston said it can be difficult to “connect United States to post collateral equal to 100% of the liabili- the dots” about the role the transactions are playing within ties it covers. a company. 15 “Unless you’re a seasoned professional in this world, it can Torti’s initial memorandum suggesting the panel take up be very hard to find out what is going on,” Preston said. the topic indicates that multistate companies be subject to “Having greater transparency would help state regulators to NAIC accreditation standards “to ensure that we can rely on understand what is going on, as well as the general public.” solvency regulation performed by our peers in other states and to ultimately ensure protection of consumers in our Proposed regulations designed to promote transparency states,” he wrote. “I would therefore interpret this note to re- and uniformity in the reinsurance captive space would “put quire that a reinsurer that is assuming risk from a company all the information in one place and make it easy to under- or companies in a different state than its domicile and/or stand,” Preston said. from a company or company with policyholders in multiple states be considered a multistate reinsurer.” Finally, Preston said Swiss Re was interested to see the FIO recommend that states adopt and implement best practices Steve Kinion, director of the bureau of captive and financial to mitigate losses from natural catastrophes. products at the Delaware Insurance Department, said in a memo to Huff: “If this request becomes effective, then any cap- He said Swiss Re has recommended that states adopt similar tive reinsurer that reinsures risks located in a state other than measures in the past because the company believes they the captive’s domiciliary state would be subject to the accredi- would greatly improve states’ resiliency to natural disasters. tation standards. While the thrust of Superintendent Torti’s request regards life insurer-owned captive insurers which In September, Swiss Re partnered with the Rockefeller reinsure XXX and AXXX excess reserves, the request would Foundation and two other organizations to support efforts encompass practically all captives which act as reinsurers.” 100 cities around the world to become more resilient to natural disaster losses. Kinion said if the panel determines captives should be considered in the same manner for accreditation purposes “We are firmly committed to seeing improvements in this as multistate insurers, they would all but cease to be cap- area, and as a firm, we are there to assist the states,” Preston tives. His memo said that applying accreditation standards said. to those captives would conflict with the state laws of (By Jeff Jeffrey, Washington Bureau manager: every captive insurance domicile. NAIC’s principles-based [email protected]) reserving task force is in its early stages of data collection (December 18, 2013) on life-insurer owned captives insurers that reinsure XXX and AXXX reserves and so Torti’s request is premature, he NAIC Panel Considers Defining Some Captives as wrote (Best’s News Service, Dec. 16, 2013). NAIC could help Multistate Insurers develop guidance to help states review such transactions by filling its vacant captives working group. A National Association of Insurance Commissioners’ panel (By Thomas Harman, associate editor, BestWeek: is considering the possibility of treating a small segment [email protected]) of the captive and special purpose vehicle market used by (December 20, 2013) some life insurers in the same manner as multistate insurers for accreditation purposes. The action has created concern NAIC Panel Seeking to Attract More Groups, Insurers in among captives insurance officials in Delaware, one of the Third ORSA Pilot nation’s top captive domiciles. Insurers and groups interested in becoming prepared for The proposal by Rhode Island Insurance Superintendent Own Risk and Solvency Assessment Act filing requirements Joseph Torti came during NAIC’s Fall National Meeting on that will go into effect in 2015 will have at least one more Dec. 15 during a meeting of the Financial Standards and Ac- chance to do so as part of a National Association of Insur- creditation Committee. ance Commissioners’ 2014 pilot program.

The panel asked its staff to clarify the definition of “multi- The NAIC in 2012 approved its Own Risk and Solvency state insurer” as it impacts certain life insurance companies Assessment Model Act, which requires insurance companies who use XXX and AXXX captives and special purpose ve- that have annual premiums of more than $500 million and hicles that are the target of NAIC efforts to lessen reserves insurance groups with $1 billion to submit a report outlin- of life insurers using them. ing their enterprise risk management processes, any risks the company or group could face in the future and whether Panel Chairman John Huff, Missouri’s insurance commis- the company has enough capital to address those risks. In sioner, told Best’s News Service the panel discussed the March 2012, the NAIC approved an ORSA guidance manual possibility of treating captives as multistate insurers. Both that contains specific information reporting requirements Huff and Torti said the effort deals solely with the XXX and (Best’s News Service, Sept. 13, 2012). AXXX reserving tools. With initial ORSA filings not due for most states until 2015, the Those pools are the target of NAIC’s principles-based NAIC’s ORSA subgroup in the interim administered a pilot pro- reserving effort that is before the states for ratification. To gram to smooth out the ORSA filing process for both industry date, the change has been approved by lawmakers in only and regulators. However, participation in the pilots has been a handful of states, but Torti has said once principles-based limited primarily to within lead states that have members on the reserving is ratified, the need for XXX and AXXX reserving subgroup panel. In 2012, only 13 insurance groups participated disappears. in the pilot, although 22 --- those from 16 states --- did so last year. 16 The panel is looking to relinquish some control of the pilot Vermont Expects Growth of Licensed Captives to while enticing more states and companies to participate, Continue in 2014 subgroup chairman Danny Saenz said. In prior years, the pilot program saw companies file draft ORSA documen- After crossing the 1,000 licensed captives mark in 2013, Ver- tation to the subgroup, but this year the flow would go mont captive regulators expect growth to continue in 2014, between industry participants and states that are interested while new state legislation is pending that could ease the in participating. return of any captives that might wish to leave temporarily.

The subgroup had been using the data from the first two Vermont, the nation’s leading domicile, has 1,013 captives li- years to suggest improvements in what and how companies censed in the state with 588 active insurance companies. The should file ORSA-related material and getting feedback on state licensed its 1,000th captive insurer in October (Best’s what the filing document should cover. In the third pilot, News Service, Oct. 16, 2013). Twenty-nine new captive insur- Saenz said while the subgroup would continue to provide ers were licensed in Vermont during 2013, which is roughly guidance to groups and regulators, states would provide the the state average since it became a domicile in 1981. panel only the year’s aggregate data and some observations about the process at year’s end. Of the 29 new captives, eight were from the health care area, four were from construction and three were from transpor- For the new pilot, lead states will be asked to communicate tation. “The continued formation of hospitals and doctors’ with companies and groups to notify them of the opportu- groups setting up captives in Vermont has been a very posi- nity to participate in the new pilot. “We’re trying to push tive trend that we expect to continue,” Dan Towle, Vermont’s this out to as many states as possible,” Saenz said. Director of Financial Services in a written statement.

He said the hope is that interested insurance industry David Provost, deputy commissioner captive insurance at members and states can coax one another into participat- the state Department of Financial Regulation, told Best’s ing in the new pilot. “I don’t think we’ll get 100% [par- News Service that Vermont officials expect captive growth ticipation],” he said, but added the approach could prove to continue. “We just try to go for quality,” Provost said. “We more effective in reaching out to industry and getting want to see good companies that are going to last, that are more participants. doing this for the right risk management reasons.”

Saenz said the subgroup’s review of the first two pilots While some new domiciles are hoping for redomestications showed that the 2013 filings were much more robust by companies with in-state ties, history says they could and informative than those of the initial 2012 year, when have difficulty prying captives from Vermont. Provost said there were 13 participants. During 2013, nearly every fil- Vermont has had about twice as many redomestications ing was improved and was acceptable, including those of coming into the state as leaving it. “They’re from all over the many first-time participants, because much more interac- place and they go all over the place,” he said. tion was occurring to address questions that arose. Only four filings proved inadequate last year, Saenz told the New captives legislation could reach the floor of the subgroup. Vermont House as soon as next week, Provost said. The legislation, H 563, is currently being moved through House Saenz told the panel he was concerned that companies and committees. groups submitting filings in some cases were doing so with the idea that it is a requirement for regulators, when in fact It features a new “dormant status” option that would allow it should be viewed as a document regarding risk manage- prior captives looking to restart operations the chance to ment that should inform a company’s board of directors. write business upon state approval. Premium tax payments are waived during dormancy. “This is addressed to those com- The subgroup’s work has resulted in a template that it is panies that, for whatever reason, captives don’t make sense sharing with companies as it reviews their ORSA submis- anymore,” Provost said. “Rather than having them restart, we sions that allows states to grow and learn as it goes through let them go dormant for when they choose to start up again.” the process of accepting ORSA filings. Saenz told Best’s News Service that although the filings will be comprehen- Companies can seek dormancy status via an application sive, they ultimately should be internal documents that approved by the insurance commissioner. Restarting would differ based on what a company’s need might be. be a matter of petitioning to surrender the certificate and resuming business. Provost said part of the benefit for the Subgroup members demonstrated a desire to be less prescrip- dormant captive would be avoiding incorporation costs and tive as they rejected an attempt by the American Council of Life legal fees when restarting. Insurers to include in the ORSA guidance manual all material risks related to captive reinsurance in a list of items to be Captives lost in Vermont are usually the result of mergers covered in assessing group-wide capital adequacy. The subgroup and acquisition activity, or a change in plan at the parent indicated that groups should feel free to include mentioning level, Provost said. Twenty-seven captives dissolved in 2013, captives in reports it if the risk is appropriate and to let regula- with only three redomesticating, Provost said. But the bill’s tors inquire about them if they were omitted unnecessarily. beneficiaries would be those companies whose management (By Thomas Harman, associate editor, BestWeek: has opted not to have captives at present, with an eye toward [email protected]) future use. “Dormancy would allow them to shelve the cap- (January 31, 2014) tive at minimal cost, rather than dissolve it entirely,” he said. 17 The new health care captives include Spectrum Medical in a recent report on regulatory modernization issued by Group, Usable Corp.; United Health Services; Excela Health; the U.S. Treasury’s Federal Insurance Office and at the fall Catholic Medical Partners; PA & NY Hospital Members; and meeting of the National Association of Insurance Commis- Cassatt RRG Holding Co. Other 2013 captives included Am- sioners. Following the meeting a panel of industry observ- col International Corp., Burns & Scalo, Tully Construction ers participated in a Best’s Review webinar wrapping up Co., UBS Real Estate Securities, Covenant Transportation, the recent NAIC meeting. The following is an edited excerpt and Freidkin Cos. from that discussion. (By Thomas Harman, associate editor, BestWeek: [email protected]) LEE McDONALD (A.M. Best Co.): Steve, could you talk for a (January 25, 2014) minute about captives and Native American lands? That’s a very interesting topic. Willis Global Captive Management Names Chief Executive STEVE KINION (Delaware Department of Insurance Bureau of Captive & Financial Insurance Products): Yes, it’s a very Paul Owens has been appointed chief executive officer of interesting topic and it’s one that’s very timely. The NAIC the the newly formed Willis Global Captive Management just formed a new working group to deal with insurance business. issues involving Native American tribes. That’s being chaired by Oklahoma Insurance Commissioner John Doak. I have to Owens has held a number of senior positions within Willis congratulate Commissioner Doak. He pushed and lobbied Group since joining in 1990, most recently as chief operat- for this working group’s formation. If I can say one thing, in ing officer of Willis Ltd. and global businesses and has had a terms of the working group rather and the FIO report, the long association with the group’s captive operations, Willis FIO report did mention greater accessibility for insurance said in a statement. products on Native American lands, which is good and it should be congratulated for that point. My comment though Earlier this week, Sarah Turvill announced she will retire as specifically deals with what I see as a new trend. As captive chairman of Willis International at the end of this year. domiciles emerge in the states, that being the 50 states and territories, what I’m also seeing is a trend of captive domi- Willis Group Holdings plc named her as a non-executive ciles sprouting on tribal lands as well. Most recently with director to the board of Willis Ltd. The appointment takes ef- the Delaware tribe of Oklahoma. Now the Delaware tribe fect in January, and needs U.K. Financial Conduct Authority does have an ancestral homeland connection to the State approval (Best’s News Service, Dec. 18, 2013). of Delaware but otherwise we’re not connected in any way. Earlier this year the Delaware Tribe of Oklahoma announced Shares of Willis Group Holdings (NYSE: WSH) were trad- that it was a captive insurance domicile. It’s headquartered ing at $44.69 on the afternoon of Dec. 19, down 0.09% in Bartlesville, Okla., as tribal headquarters and has Caney, from the previous close. Kan., as its insurance headquarters. (By Jeff Jeffrey, Washington Bureau manager: [email protected]) We did some checking into that and sure enough it’s a (December 20, 2013) domicile that is competing for certain sectors of the captive business. It’s a new phenomenon that we’re watching Industry Panelist Expects Captive Growth in Native closely. It’s really interesting. American Domiciles To view the webcast, visit: http://www.ambest.com/webi- A recent development in captive insurance is the emer- nars/naic13. gence Native American domiciles as hosts to alternative risk (January 11, 2014) entities. Native American insurance issues were mentioned

18 19 A.M. Best Europe—Rating Services Limited 6th Floor,12 Arthur Street London, EC4R 9AB +44 (0) 207-626-6264

A. M. Best Asia-Pacific Limited Unit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong +852-2827-3400

For comments or questions on Best’s rating of Captive Insurers, please contact:

Mr Clive Thursby, Senior Director, Market Development, A.M. Best Europe – Rating Services Ltd. Telephone: +44 (0) 207-397-0279 | E-mail: [email protected]

Mr Tom Birbeck, Director, Market Development, A.M. Best Asia-Pacific Ltd. Telephone: +852-2827-3410 | E-mail: [email protected]