Captive Owner Q&A: Theresa Severson, Kite Realty

Vice-president of insurance and risk at Kite Realty Group, Theresa Severson, has received recognition from both CICA and RIMS this year for her integration of two complex risk management and captive programmes during the merger of Kite with Retail Properties of America. Here, she discusses with Captive Review how she and her team managed this process and came out the other side with a stronger, more diversified captive


Captive Review (CR): Could you introduce yourself and tell us about your current role and responsibilities with Kite Realty?

Theresa Severson (TS): As the vice-president of insurance and risk at Kite Realty Group (KRG), a publicly traded real estate investment trust focused on owning and operating class A open-air shopping centres, my responsibilities encompass various aspects of risk management and insurance programmes. These include overseeing operational and corporate exposures, managing claims, ensuring business continuity and monitoring enterprise risk management strategies. Furthermore, I have played a pivotal role in establishing our captive and continue to effectively manage its operations.

CR: Both CICA and RIMS have already recognised the excellent job you have done in managing the transition of two sets of insurance programmes into one during the merger of Kite Realty with Retail Properties of America. What were the main challenges this task presented you with?

TS: In July 2021, Kite Realty Group and Retail Properties of America (RPAI) announced a merger, with Kite Realty being the surviving entity. RPAI’s legacy insurance programme renewal was on 1 December 2021, leaving little time to pivot on the upcoming renewal.

As the risk manager, I wanted to make sure we took a holistic, captive-centric approach for the new Kite insurance structure. The merger closed on 22 October 2021. My first challenge was evaluating two very different insurance programmes and captives.

RPAI’s renewal date was 1 December and KRG was 1 March. We decided to keep each legacy insurance programme in place, doing a short-term 1 March to 1 December policy period on the legacy KRG portfolio. This allowed me time to update the statement of values and have the necessary modelling completed.

Using the updated statement of values and meeting directly with US, Bermuda and London underwriters, we were able to secure competitive terms on a combined programme with a 1 December date.

CR: How did having a strong captive programme help you in providing more flexibility during this merger process?

TS: Utilising the captive enhanced our ability to control volatility in the market and creatively fund risk. It allowed us the flexibility when building out our coverage tower when, based on our modelling, the traditional marketplace may be overcharging.

Including a ‘difference in conditions’ coverage in the captive also allowed Kite Realty Group to supplement our business disruption exposures from various weather-related exposures such as freeze and waiting periods.

CR: What approach did you take in order to combine the two sets of captive programmes?

TS: The tax, audit and other considerations were investigated for both captives. One captive was a fronted disregarded entity for tax purposes and deductible reimbursement plan making an 831(b) election.

After doing the due diligence, it was determined that the Vermont-domiciled legacy RPAI captive would be the surviving captive.

Working with the executive team, we provided current and forecasted financial models for Vermont captive retention maximums and it was agreed, based on market pricing and capacity challenges, that the captive would take on more risk and write multiple layers of wind buydowns and add a property difference in conditions policy to cover denied events commercially, including waiting periods and freeze.

CR: How important was it for you to have a supportive senior management team behind you that truly understood the value in captive programmes?

TS: The backing of senior leadership provides the necessary resources, guidance and authority to operate the captive effectively. That support became obvious from the beginning, as that dynamic was already built into Kite Realty Group’s culture.

CR: Can you explain what was the make-up of Kite Realty’s captive programme before the merger and how it was transformed following the merger?

TS: Following the merger, KRG experienced a substantial 60% growth in its total insurable value, resulting in the need for a comprehensive restructuring of our insurance and captive programmes.

As part of this process, KRG’s captive transitioned from a deductible reimbursement programme with a $50,000 limit and an 831(b) election to the former RPAI captive that assumed a larger property exposure, including coverage for wind, difference in conditions and general liability.

CR: What advice would you give to any other captive owners or risk managers going through a major merger with their company following your experience?

TS: When going through a large merger, it is important to prioritise taking your time and conducting thorough due diligence and modelling. Although immediate action may be required, modelling enables you to engage in meaningful discussions with senior leadership regarding risk tolerance and retentions.

These conversations can help you determine your marketing strategy with the broker. I recommend that risk managers actively partner with brokers during the carrier meetings. After all, no one knows your risk management strategy and can tell your story better than you.

CR: How has it been working towards implementing agreed risk management practices within this much larger company post-merger?

TS: Senior leadership has been extremely supportive in the implementation of risk management practices. When the reasoning behind the initiatives are discussed and understood, it helps foster a culture where everyone is aligned and committed to doing what’s right for the company.

CR: How do you think the increased scale of the captive will affect future performance and how you can utilise the captive for other lines?

TS: As captives become increasingly familiar and valued within the executive suite, risk managers and captive management firms will be expected to present new and innovative ways to maximise the utilisation of the captive.

While retaining self-insured retentions will remain a key component, captive owners will look to the captive for risks such as enterprise risk management, environmental, social and governance (ESG), third-party coverage, as well as employee benefits.

CR: What new changes are you planning for Kite Realty’s captive programme in the near future to further strengthen it?

TS: To further strengthen Kite Realty Group’s captive programme, I intend to prioritise flexibility and adaptability. This means keeping an open mind to new captive lines that align with our evolving business strategies and market conditions.

We will thoroughly evaluate potential opportunities in areas such as employee benefits, ESG initiatives, and enterprise risk management. By exploring these avenues, we aim to enhance the overall strength and effectiveness of our captive programme.

CR: What does it mean to you for your work to have been recognised for excellence this year by both RIMS and CICA?

TS: Being nominated by my peers is an immense honour. I have thoroughly enjoyed being actively involved in both organisations, as they have afforded me the chance to learn and share ideas with industry professionals who are highly knowledgeable and who I greatly admire. Both organisations have contributed significantly to my growth as a risk and captive manager.

7 November 2023
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