60 years of captives
The legacy of Fred Reiss
The late Fred Reiss is credited with forming the first captive, but what he did has led to a much greater legacy on Bermuda. Here, author, podcaster and former lawyer Michelle St Jane speaks to Jonathan Reiss, the son of Fred Reiss, about his father’s legacy.
When Fred Reiss chose Bermuda as his domicile of choice for what is now accepted as the first ever captive, he also set the foundations for Bermuda’s insurance and re/insurance industry that flourishes today. The Bermuda captive sector has recorded exponential growth over the last six decades but so has a much wider risk transfer industry that also came into being.
That has also become the bedrock of Bermuda’s economy. But Reiss’s legacy remains in many other ways. His legacy is continued in the industry by his son and daughter, who speak of the achievements of their father with pride.
We all face the velocity of change across the global risk landscape. Prudent risk management demands diligent planning, control, and financing. The traditional insurance market plays an important role. Yet over the centuries, history shows us that there are times that commercial insurance coverage has been unavailable, lacked capacity and flexibility or, worse, been provided with untenable terms and conditions. For companies in regulated sectors this raises the risk of not being able to conduct business at all.
This raised the need for an alternative risk transfer vehicle, that’s flexible enough to take control of the overall cost of the risk, yet manage the peaks, the troughs, the volatility—while being versatile and fit for many purposes. The Bermuda captive, conceived by Reiss, accommodated all of this.
Trailblazer Fred Reiss was the grandfather of the captive insurance industry. With a spirit described as intentional and intelligent, Reiss developed and innovated around the idea of designing structures of self-insurance.
The seeds of the idea came from American steel companies, which would manage their own risks through a dedicated subsidiary. But Reiss realised that the concept could evolve. It just needed imagination, flexibility and an innovative jurisdiction form which to operate.
Reiss pursued the concept in Bermuda. He launched the first captive there in 1962. It would lead to the creation of a global industry and completely new way of managing risk.
By the 1990s, the captive insurance industry had become global, demonstrating the benefits captives provide to parent companies. The main advantage of a captive is that control of insurance provided remains in the hands of the captive owner.
This proves a major benefit when insurance coverage can be hard to get or non-existent in the commercial markets. Or when new risks emerge, not yet covered by the open market. The way the market has developed evidences the evolution, transformation, and expansion of options available.
These days, many different structures have evolved covering every form of risk. The use of cell captives, rent-a-captive structures, and other innovations are all commonplace. Group captives are widely used by companies that pool their risks. New and esoteric risks are being managed ranging from cannabis to crypto to cyber risks.
In the late 1990s, Bermuda-based author, podcaster and former lawyer Michelle St Jane led a Bermuda Insurance Institute sub-committee tasked with identifying and celebrating market leaders and the lifetime achievements of individuals.
Fred Reiss was the inaugural recipient of the Lifetime Achievement Award—but received the award posthumously. Fred’s son Jonathan Reiss, daughter Nicolette Reiss and widow Debbie, received the award on his behalf at a Bermuda Insurance Institute industry dinner, held at the Hamilton Princess in Bermuda.
Relaunched at the annual Bermuda Captive Conference in 2016, the Fred Reiss Lifetime Achievement Award selects professionals who’ve made an outstanding impact and valuable contribution to the captive insurance industry. Recipients have included Jill Husbands, Michael Burns, Brian Hall, Jeremy Cox, and Catherine Duffy.
“Reiss developed and innovated around the idea of designing structures of self-insurance.”
”He created an industry and a movement.“
Jonathan Reiss
In a detailed interview with Michelle St Jane, Jonathan Reiss shares his memories of his father’s insight and contributions to the sector.
Michelle St Jane: The captive industry could’ve very easily gone somewhere else. Boy, what a difference it makes, because when you look at companies like ACE going into underwriting, satellites, and rockets, which is amazing—we wouldn’t have this technology and the internet of insurance stars coming up without that kind of underwriting.
Jonathan Reiss: A lot of credit needs to go to very innovative people at Lloyd’s of London. Without them, Fred probably wouldn’t have been successful. And there were people in Bermuda who helped him in a way that wasn’t available elsewhere.
It is a historical point, but my father was credited with coining the term captive. A lot of people, excluding people who’ve worked in the captive insurance industry, don’t know where that term came from. It came from the big US steel companies.
Their factories would shut down if they didn’t have enough coal. They relied on the delivery of coal. Sometimes there was blockages and these big companies would get frustrated that it would cost a lot of money if their factories shut down. They ended up doing vertical integration. They ended up buying their own coal mines. Those mines that each steel company owned were called captives. That’s where the term captive comes from in the insurance industry.
My father passed away in 1993. That was the year I graduated from university and started work. I never had a chance to really talk to him in depth about the insurance industry. I would love to have had a chance to do that, but I wasn’t knowledgeable enough about the industry when my father died. So, I didn’t always get his views.
Bermuda was a strange place when my father arrived on the Island. It was a little bit like a Southern American town. There was a lot of racism and a lot of close-mindedness. A relatively small group of powerful families controlled the economy.
It was the people that gave Bermuda the reputation of a stereotypical Southern American town. The pain of that behaviour from that era still haunts us today. My father wasn’t particularly welcomed into the community by all. But clearly there were people that welcomed him. One of those was Arnold Francis, who was a terrific lawyer. He was one of my father’s great friends and his son Donny is a very good friend of mine.
I thought he had some great friends, but a lot of people in the community turned their back on him. They didn’t like a flashy sort of American, but I don’t think it ever bothered him.
He travelled a lot. He was intent on achieving big things. He was focused on what he was achieving. The smaller minded people in Bermuda didn’t really bother him. I think he was somewhat oblivious to them.
In Bermuda today, there is some concern about expatriates on the Island. There’s always going to be tension. I like to remind my Bermudian friends that it was world-class businesspeople who arrived in Bermuda in the late 1980s and 1990s. Not just my father, people such as Brian Duperreault, Brian O’Hara, Michael Butt. They brought a tremendous change in the business culture on the Island.
It was very much for the better. I’m not saying that there still wasn’t enough opportunity, but they greatly improved the business environment and made it more inclusive. It’s taken time, but they were world-class leaders who moved to the Island and made the place better.
I like to think of my father as one of the first ones. There were many others.
St Jane: The Bermuda Insurance Institute recognised Fred with the first Lifetime Achievement Award.
Reiss: I should thank you for that. It was a great honour. I was there at the gala dinner with my sister and my stepmother, Debbie to posthumously accept the award. Brian Duperreault was the first recipient of the Insurance Person of the Year.
I met him for the first time there and ended up working for him at Hamilton Insurance years later. Even better, after I received the award, I gave a very short speech and I met my wife that night. It was March 21. It was also my dad’s birthday.
St Jane: Of course, I knew the history of how your dad started the captive industry.
Institutional history cannot be lost and recognising him posthumously had to be done. We needed to remember the contributions he made on the global stage. It’s a legacy that we could capture.
Reiss: There were some financial challenges around the mid-1980s, there was a liability crisis. He had the vision to not just do captives, he also wanted to set up the fronting operations, which made sense. Ultimately other people did it too.
My father also conceived captive pools although some ended up being too much anti-selection. Some of them performed badly. There was some trial and error.
But he created an industry and a movement. You’re a lawyer, I’m an accountant. It’s the accountants and lawyers that then built on the captive insurance industry that we were there to support as well as all the other innovation that’s come since. That was also the start of the big reinsurers and now insurance-linked securities and everything else.
It’s all built on the same foundation of expertise that the captive industry gave birth to. That’s his legacy and it’s a safe legacy.
Michelle St Jane is an author, TEDxWoman Speaker, video/podcaster. She can be contacted via LinkedIn at: linkedin.com/in/michellestjane
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