Davies Captive Management

Local service on a global scale

Too many captive managers offer cookie-cutter solutions that masquerade as bespoke offerings, says Dennis Silvia of Davies Captive Management. By combining the personalised, early programme development approach of Cedar, with Davies’ scale and resources, Davies Captive Management promises to raise the bar for clients.

“The combined group offers the best elements of both businesses.”
Dennis Silvia, Davies Captive Management

Captives offer their parent companies many advantages, and these advantages are particularly apparent in times of market stress. At the start of 2020 the market was already hardening, and COVID-19 has only exacerbated this trend—and not only for lines directly related to the pandemic.

COVID-19 is just the latest in a long line of events to drive up pricing and push mid-market companies towards captives. Such companies increasingly recognise that captives are not only a way to save premium dollars or impact tax timing, but to gain greater control over risk management and financing.

Companies are struggling to find capacity in the market, and when they can it is at a price that makes it difficult to keep the business operating profitably.

Captives are becoming more affordable in part because the alternative—commercial insurance—is becoming more expensive. This creates a delta between the costs of the two options, since cost of running a captive has barely changed.

Businesses are responding by turning to captives, whether they are single parent captives or, particularly, group captives, where grouping together gives them more bargaining power with their reinsurers.

Captive solutions

Captives exist to solve risk management problems. The best captive solutions are those that have been designed carefully—not only with a client’s particular problem in mind but with an eye towards a global strategic solution for the client that makes the captive valuable today but even more valuable in the future.

A captive manager should take the time to learn about its client, and help anticipate its future needs. It should not focus exclusively on the specific problems the client itself has identified, but use its experience to help it identify problems that may arise in the future, and opportunities that have not yet been recognised.

In this way a captive insurance entity and the captive manager become a strategic partner with the captive’s parent organisation.

The best captives are not off-the-shelf outfits, or even bespoke assemblages of off-the-shelf components, as offered by many captive managers. They are entirely bespoke structures that have been created in close partnership with a client, addressing its unique and specific needs and serving it from the cradle to the grave.

“Whether it is for groups or single parent captives, this kind of approach requires service providers to work with clients from an early stage in the development of the captive.”

The distinction is particularly clear with group captives. Traditional group captive structures were assembled with a marketing emphasis, an “if you build it, they will come” mentality. These types of programmes were organised around large market segments and sought to group together as many companies as possible in a particular industry, or across industries, chasing economies of scale by lumping together businesses that may have little in common when it comes to their approach to risk management—other than a desire to be a risk-taker.

The better approach is to create more “purpose-driven” groups that bring together companies that share similar risk management philosophies to solve a particular risk management issue. Such like-minded groups benefit from sharing information about things such as loss control measures and safety protocols, driving down claims and increasing efficiency.

These groups are often keen to recruit new members, but are also highly selective. The aim is to maintain a group where the captive is finely tuned to the specific needs of its members, which is possible because the needs of the members are aligned.

Whether it is for groups or single parent captives, this kind of approach requires service providers to work with clients from an early stage in the development of the captive and take the time fully to know and understand their businesses.

Joining forces

Cedar Consulting, which has been acquired by Davies Captive Management, always strove to conduct itself this way, but it was a small operation and was therefore limited in the number of clients it could serve.

Davies is a perfect partner: despite its size, it has the philosophy of an independent captive insurance consultant. It has always combined a diverse global presence with a focus on local-scale delivery.

Davies’ acquisition of Cedar has added depth and scope to Davies Captive Management. Cedar is currently being rebranded into the Davies Captive Management operation, a process that will be complete by the end of 2020. Cedar’s Bermuda operation is being folded into Davies’ captives operation, while in the US it will maintain offices in Vermont and Ohio.

The combined group offers the best elements of both businesses: the bespoke solutions and personal attention that was the hallmark of Cedar, with the scale and infrastructure of Davies. This is a powerful combination that will offer a local service on a global scale.

Scaling up the right way

Captive insurance consulting and management is an intimate business. It is possible to scale in a way that retains the advantages of being small. The key is focusing on the point of contact between the service provider and the client.

Consider a vinyl record stereo system that contains a powerful amplifier, speakers and a graphic equaliser. All those components contribute to the quality of the sound, but the most important component, and the only point of contact between the sound system and the vinyl itself, is the stylus on the turntable.

The point of contact is tiny and precise, but the sound it creates can be huge, and is improved by the quality of the equipment supporting it. In captive management terms, it is about finding the right balance between employees and clients. Services have to be delivered in a personalised and purposeful manner while still having a price tag that brings value to the client.

Many providers today lean towards prioritising economisation over quality of service, but there is no need to choose between the two. Within that continuum there is a sweet spot, where clients will receive service that is both high quality and economical. Davies Captive Management offers a higher quality and more bespoke service than its more institutionalised peers, at the same general price point.

The institutional service providers may have a high turnover of clients and staff, which may also reduce service quality. Cedar has always enjoyed extraordinary staff loyalty, leading to strong bonds of trust and high levels of customer satisfaction. Staff got to know their clients’ businesses inside out, from their business style and their reporting needs to the macroeconomic environment affecting their industry. This allowed the captive manager to make the best recommendations that suited the client’s specific needs.

The combined group will continue to deliver the same service to our clients. At Cedar we always talked about the importance of delivering a high quality, economical service, but we did not make much noise because we were banging a tiny drum. Davies Captive Management will continue to bang the drum and will now make a much bigger noise.

The message we want to convey is that captives owners should not compromise on the quality of the service they expect, and should not accept cookie-cutter captive insurance solutions because they appear to be the cheapest.

Davies Captive Management will prove it is possible to deliver a truly bespoke solution, with a personalised and attentive service, at a price that is competitive.

Dennis Silvia is executive vice president at Davies Captive Management.

He can be contacted at: dennis.silvia@davies-group.com

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