Fresh from speaking at the Captive Review London Leaders’ Summit 2023 in February, AstraZeneca’s head of group insurance Kevin Steed discusses how, in his 22 years with the company, its captive strategy has evolved and what he thinks today’s captive owners should be looking at closely to ensure successful outcomes

Captive Review (CR): Please introduce yourself and explain your background and what your role is with AstraZeneca’s captive programme.

Kevin Steed (KS): Sure. I’m Kevin Steed, head of group insurance within AstraZeneca, with responsibility for insurance across the global enterprise. I started my career as a manufacturing/laboratory chemist for a small company. That role created a lot of opportunity, and while there I took an active interest in health and safety. In fact, health and safety was my gateway to AstraZeneca. I joined 22 years ago as health, safety and environment advisor at one of our manufacturing sites.

During my first six years I took a wider interest in risk management, and 16 years ago I joined the insurance team with a focus on supply chain risk. I haven’t looked back since. Speed forward to the present day, my role as head of group insurance is setting the group insurance strategy and maximising the use of our captives in delivering the strategy. As part of the role, I am a director on the captive boards and carry the chairman/president title.

CR: Can you explain the key features of the captive programme and how the company built it up over time?

KS: An interesting choice of words, as on the one hand the AstraZeneca captive environment has decreased, and on the other, we are using our remaining captives to a greater degree. When I joined the insurance team in 2007, we had captives in the UK, the US, Cayman and Switzerland. The insurance headcount was probably around 25.

We have been on a journey of rationalising the insurance entities. Through liquidation and divestment, we now maintain two captives and have a team headcount of three, although arguably we are doing more but in a more efficient manner. Our current captives were formed in 1994 when Zeneca was spun-out from ICI. They are part of our corporate DNA. The Cayman captive is dual-domiciled and acts as the central group captive, whereas our Vermont captive is purely for US benefit type risks.

CR: What are some of the long-term benefits this captive programme has delivered to AstraZeneca? And how have these benefits become enhanced with the development of the programme over time?

KS: We’re all aware of the traditional benefits of captives but, for us, we continue to push that envelope. We’ve been working on several projects that have raised the internal interest in our captive operations from dividend to risk management bursary, significant reduction in servicing costs, to million-dollar premium synergies due to insurance risk consolidation post deal-close.

Other benefits have been derived through our multi-year, multi-line reinsurance process. If structures are well-designed and operate as intended, they can be extremely efficient resources to mitigate volatility within the captive. Over time, we have enhanced the mechanics, creating a reinsurance ‘drop-down’, thereby maximising potential recoveries from the process versus retaining additional risk.

CR: What were some of the key takeaways from the London Captive Leaders’ Summit?

KS: It was good to reconnect and see how other organisations use their captives. From one of the polls in my presentation, it was apparent that most responders had a limited number of unique risks in the captive. Appreciating that it is dependent on risk appetite, it does appear that there is still considerable value on the table which organisations can leverage. Connected risk was also a recurring theme, with many of us discussing the topic during the various sessions.

CR: In a poll of delegates at the London summit, cyber emerged as the biggest ‘new risk’ for captive owners. Why do you think this is? And what do you think is the best approach to this challenge?

KS: From the new risks, it is the one that is constantly evolving in terms of coverage and risk in the underwriter’s mind’s eye. There are regular events being reported in the media, despite where one may have expected the organisation to have robust controls. It is therefore indicating that in spite of best intentions, cyber risks are real, they are out there and third-party actors are becoming increasingly active. Investing in prevention is paramount, captives can provide parental support should the controls fail. Within AstraZeneca, we have a captive bespoke cyber wording as we didn’t feel comfortable with standard market wording that correctly reflected our business.

CR: How have AstraZeneca’s captives changed the risk portfolio and exposures over time?

KS: We focus on core business risks, which for the most part covers the majority need across the business, either meeting statutory or contractual need. Our general philosophy is to use captive processes wherever possible, which means we currently manage 15 unique risks across 90+ countries, nine fronting networks, with cover being a combination of direct placements and reinsurance. This mix creates significant diversity and helps protect the captive from claims volatility, which may arise if you only have a limited number of insured risks. Finding the balance of known risk profiles, periodic spikes, low probability catastrophic losses and well-managed risks is certainly key to the long-term success. Our CEO laid out strong growth plans, most of which have already been met. The organisational growth has had a correlating increase to our total insurable value, but we argue that it doesn’t mean the risk of loss also increases – risks continue to be managed in an effective way. We look to be innovative and create value, the captive has written non-damage business interruption and cyber for several years as we reflect the changing external environment. The one risk we don’t centrally manage is local equivalents to workers’ compensation/ employers’ liability.

CR: Are there any additional lines you want to introduce to the captive programme in coming years?

KS: The past couple of years has shown that business interruption losses from non-traditional perils are becoming prevalent. There isn’t a viable market solution as the typical insurance product doesn’t know how to react to a measurable outcome, without defining the events that give rise to that outcome. For our 2024 multi-year captive structure, we are planning on adding a ‘business resilience’ cover that pulls together the connected-risk threads arising from business interruption losses that tie back to the group’s principal risk statements. It will be an interesting challenge when it comes to getting our reinsurers on board.

CR: What approach do you advise captive owners to take when it comes to scaling up their captive?

KS: Get the right mix of risk diversity and determine your own risk appetite. Understand how the individual risks are managed within the business and get comfortable with the risk profile. Structure your reinsurance to best mitigate exposure volatility, whether that be stop-losses, multi-year multi-line, annual, or even a blended approach. Be clear on the strategy and why you are doing it.

CR: How important is it that a captive’s parent and CFO understand and are aligned with the captive owner on utilising a captive as a long-term tool?

KS: Without a doubt, it is critical that the parent/ CFO are aligned on the long-term vision as captives aren’t generally suitable for a short-term market management concern. In fact, any new captive should have a clear business case on the long-term strategy or be very clear on how potential liabilities would be exited. Once a CFO recognises how a well-managed captive runs, they will quickly become an advocate.