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US captives: A growing success story
Dennis P. Harwick, president of CICA, welcomes readers to US Captive 2006.
April 2006
It is an exciting time for the captive insurance industry in the United States. Companies and organisations that have traditionally relied on the past are forming new captives to handle additional tasks, including lines such as employee benefits. Even insurance agents and brokers are commercial insurance market are thinking about, and forming, new captives. Companies and organisations that used captives for one purpose in the being pressured by their clients to help form captives to meet some components of their insurance needs.
States that established themselves early as domiciles for captive insurance companies, such as Vermont and Hawaii, are being challenged by a more recent group of domiciles—including Arizona, Nevada, South Carolina, Montana, and the District of Columbia—with even more States pursuing the enabling legislation to authorise the formation of captives.
There was a time when companies and organisations only turned to captives and risk retention groups when a “hard market” in the commercial insurance industry left them with few options. When commercial insurance coverage became either unaffordable or unavailable, they crafted a solution—forming their own captive insurance companies. Many experts said that captives would only last until the commercial market softened. How wrong they were.
Along the way, people started to realise that using a captive had another set of benefits. They could, for instance, cover hard-to-place or unusual insurance risks. They could craft insurance coverage to fit their risk tolerance. And they could have a stability they did not have with the commercial market. With a captive, they did not have to worry about whether their premiums would quadruple the next year, or whether they would get a non-renewal notice. As early as 1972 a group of risk managers got together and talked about the challenges and rewards of using captive insurance companies, and CICA, the Captive Insurance Companies Association, was born. By 1981, Congress passed the Liability Risk Retention Act (LRRA), which allowed the creation of risk retention groups to write liability coverages. Amendments to LRRA in 1986, during a time of crisis in the commercial liability market, opened the door for a new generation of risk retention groups, the vast majority of which were formed as captive insurance companies.
Today CICA is an international organisation with members from most of the States in the US, along with dozens of foreign countries. In addition, domiciles within the US have formed their own captive associations. There is a growing infrastructure to support the creation and administration of captives, including consultants, actuaries, law firms, accountants, reinsurers, captive managers, etc.
Far from being a “temporary fix”, captive insurance companies are here to stay. Welcome to the world of captives!
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“Many experts said that captives would only last until the commercial market softened. How wrong they were.” |
