ROUNDTABLE: CAPTIVES
Q4: WHAT INNOVATIONS ARE YOU SEEING IN CAPTIVES?
“Bermuda has become the default domicile for Canadian cannabis companies.”
Michael Parrish
Parrish: There are new industries and therefore new risks and captives can focus on these. The digital asset business is interesting and very much something that Bermuda is focused on. The government is very keen to promote Bermuda as a hub for digital asset business and the captive industry will play a role in that.
The BMA has introduced new licence categories, which are designed to appeal to companies which are innovative, and many companies in that field would consider themselves to be innovative.
They also have the regulatory sandbox, which is an opportunity for new companies to try and do a bit of a proof of concept and work within an environment that doesn’t have quite so much regulatory rigour. There has certainly been interest and we have transitioned a company from one class to anther using it.
That kind of innovation will continue. That’s the way forward for Bermuda. That kind of innovation is good.
The other thing that we’ve seen a lot of this year is the cannabis industry and its potential to use captives. Bermuda has become the default domicile for Canadian cannabis companies that want to form captives.
Is there going to be hundreds of those? No, there isn’t. But that’s again, an example of innovation, where a lot of other domiciles took a step back. >>>
“We are seeing more analytical tools to help companies better understand risks.”
Paul Bailie
<<< In contrast, the BMA got on the front foot and said that they were quite happy as long as the business is federally legal. Obviously, that precludes cannabis business in the US for the moment, because it is not federally legal there. But in Canada, it is federally legal.
Meanwhile, other captives have been formed in response to difficult market conditions. Those new companies struggled to get D&O cover, for instance. The market conditions have pushed these new companies to look at captives. Some of these startups are pretty entrepreneurial so they see how a captive can work for them and they do it. Now, even if the market softens again, they are used to working in that captive environment.
There are other new risks coming. We are looking at doing things such as vaping liability which, again, is difficult to buy in the commercial market. So that’s a great example of where Bermuda does have an edge. Bermuda remains the centre for those sorts of innovations.
Bailie: Climate risk is something we are starting to look at in more depth. We have done some work based out of Asia. We see it as an area where captives are going to have a big role to play, almost certainly. It’s still a work in progress. We’re still trying to get our heads around some of the issues.
There are some interesting tools that might make a captive vehicle an ideal way to manage some of those risks. And more generally, we are seeing more analytical tools to help companies better understand risks, the interdependencies between various risks and the capital you need to manage those risks.
“We’re going to see insurtech help play a role in those captives.”
Matt Carr
Carr: Some of the emerging risks we are seeing captives look at include securing hot and cold storage wallets for crypto as well as crypto exchanges, coin offerings—things that weren’t happening three or four years ago. Those risks are closely scrutinised but I think we’re going to see insurtech help play a role in those captives as well.
We are on a precipice for a new kind of digital world. It has been nice to see some of these types of clients in the pipeline. They are looking to expand what they’re doing in Bermuda and looking closely at how they can harness the insurance expertise here.
“We need another wave of captive risk managers.”
David Gibbons
Gibbons: From an innovation standpoint, I want to focus on education. We need another wave of captive risk managers coming in now; you’re seeing a changing of the old guard to a new guard. A lot of these individuals are coming in with some new perspectives, but maybe not the level of knowledge as to why a captive was set up to begin with.
The onus is on everyone in this roundtable and our many compatriots to educate them as to why a captive was set up, what has changed, and what has remained the same—so that they understand the full value proposition.
A lot of the new risk managers are focused on climate change and cyber and all the various new areas of risk, but they also need to understand the existing areas of risk. We need to work through the journey with this new generation of risk managers.
“The captive becomes an enabler of the ESG strategy.”
Séadna Kirwan
Kirwan: We’re seeing captives do more and become bigger and more strategic. Newer risk managers don’t just want captives to be essentially replacing the insurance coverage, they want them to be an enabler of the overall strategy of the business.
We are also seeing a lot of questions around the broader ESG initiative. And how can the captive support and enable a broader ESG strategy within corporates? Thinking about how we can position the captive as an enabler of that strategy in terms of things like the climate risk is helpful in that sense.
That will also come into underwriting. One client is trying to change its underwriting model so that all of its future property builds will be built on a sustainable basis. And the captive will reward that change through better, cheaper insurance coverage from the business unit perspective. Again, the captive becomes an enabler of the ESG strategy.
The more the ESG idea gets bandied around the more the idea of a green captive seems more and more prevalent. How can we make our captives more green?
“We are using captives to fulfil clients’ diversity and inclusion goals.”
Brian Quinn
Bailie: There is a new breed of risk managers. There’s quite a bit we can do to bring them up to speed, but some of their priorities are a bit different.
There’s a lot we can learn from them too, in terms of what they’re trying to achieve.
Carr: We have formed a climate risk finance team and I think it will be an exciting time around such risks as Bermuda and the insurance market look to embrace ESG.
Bermuda is moving in that direction in lots of ways. There are many discussions going on behind the scenes, in ocean use and conservation for Bermuda waters, for example. That dovetails nicely with what we’re seeing in our own professional realms.
Quinn: I’ve been in Bermuda over 20 years, and innovation is always here. It’s one of the selling points for Bermuda that we have captives here and the innovation.
But for my area on employee benefits, we’ve been doing a lot of work. We are using captives to fulfil clients’ diversity and inclusion goals on a global basis, for example putting in transgender cover or fertility treatments.
That is a big driver for us and our clients now and it has been led by us here in Bermuda.
Image courtesy of Shutterstock / Sugarless
