Q&A: Trends in Vermont’s captive market

Jim DeVoe-Talluto, assistant director for the captive insurance division at the Vermont Department of Financial Regulation, discusses what has continued to drive growth in Vermont’s captive market over the last year

 

Captive Review (CR): Vermont approved the formation of 38 new captives in 2023, plus another nine on 1 January 2024. What were some of the principal motivating factors behind owners choosing to form these captives?

Jim DeVoe-Talluto (JDT): For the majority of captive formations in 2023 and 2024, business owners and risk managers have assessed their risk profile and have determined that a captive programme will integrate meaningfully with their commercial cover. These companies typically have strong risk management practices and have differentiated themselves from their peer group, but the market is not pricing for their strong loss experience. Faced with increasing retentions and challenges in primary placements, companies are choosing to bet on themselves through captive formation, where they can be active participants in both the risk and rewards of their insurance programme.

CR: What are the main trends among existing Vermont captives in terms of what they are doing with their captive?

JDT: We are seeing growth in existing programmes, whether through increased self-insured retentions funded through the captive or participation in additional layers that were previously reinsured. Property placements and pricing have been challenging, so that has been an area of captive growth. Also, new and existing captives are considering medical stop-loss coverage integrated with employer selffunded health plans.

CR: How is the Vermont Department of Financial Regulation keeping up with captive owners’ evolving needs and addressing these needs?

JDT: Our regulatory framework is based on a captive’s approved business plan. On a daily basis, Sandy Bigglestone, deputy commissioner, and Christine Brown, director of captives, review and approve business plan changes for our regulated entities. In many cases, captives look to expand their programmes or limits and have sufficient capital and equity to support this growth. If a captive is looking to expand into new or innovative lines of business, we will do our own research and due diligence to ensure that the business conforms with our laws and regulations, and the team is committed to responding to each plan change request within one week. This commitment allows captives to meet their internal and external timelines and ensure their innovative captive concepts can be implemented as part of their larger risk management plan. On an annual basis, the captive division reviews Vermont captive statutes and considers updates to law that will support innovation within our strong regulatory framework. In the current year, we proposed changes to statute to clarify that a pure or other type of captive can convert into a protected cell of a sponsored captive. When sponsored captive legislation was initially adopted, we anticipated that protected cells might serve as an incubator for programmes to develop, and that some protected cells may transition to standalone captive programmes. In the last several years, we’ve seen significant growth and variety in sponsored cell structures, and some pure captives have explored converting to sponsored captives and cells to segregate risks and encourage strong internal risk management within individual business units.

CR: What are your predictions for the captive market in 2024 and your early forecast for growth in Vermont’s captive market during 2024?

JDT: Early indications point to continued strength and consistent growth in the captive market. The emergence of new domiciles in the last couple of years will provide further opportunities for prospective captive owners. In Vermont, we are seeing relatively consistent patterns over a three-year period, with significant formations on or around 1 January each year, steady activity through spring and summer, followed by another material uptick in formations just prior to the new year. There are too many variables to provide a full-year forecast, but we have had a strong start to 2024, with 11 licences issued through 15 February 2024. Our focus is on licensing strong captive programmes as well as quality regulation.

CR: After sending a delegation to Mexico last year, how strongly is the department targeting new international captives this year, and how great is the potential for new captives emerging from the Latin American region?

JDT: Our goals in the initial trade mission to Mexico were twofold: to exchange ideas about the Mexican insurance marketplace and the potential role of captives in that market, and to establish relationships with key constituencies, including insurance professionals, brokers, industry groups and government officials. As regulators, we do not set growth targets by industry, region or captive type, but we focus on engagement, education and innovation within our regulatory framework. Insurance professionals and consultants based in Mexico are actively exploring captive solutions for clients, and we are in conversation with several companies considering Vermont as a captive domicile, so I think there is tremendous potential for new captives forming from companies based in the Latin American region.

12 August 2024
5-6 November 2025

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