Hylant
Hylant eyes captive opportunities
Anne Marie Towle of Hylant examines where her company sees opportunities and advantages in the current global market.
“If that tool doesn’t fit now you could basically sit it on a shelf, or make it dormant.”
Anne Marie Towle
Hylant
This year has been an exciting time for Hylant and its Global Captives Solutions division, as it focuses on growth and upcoming expansion in Europe and other areas, its leader Anne Marie Towle told Captive International.
According to Towle, some of the continued growth that Hylant has experienced has been because of the hard market, along with the number of clients the company has been able to partner and develop unique programmes with.
“It’s very exciting to see the level of sophistication of risk managers today, as they are seeking out those who are extremely collaborative, to advise and partner with on all the potential options,” Hylant said.
“That’s where we feel we excel—we’re thoughtful on the people we bring on our team and how we interact with some of our other colleagues in Hylant. It’s important to bring in specialty units, some of the best of the best, whether it’s a cyber expert, a property expert or mergers and acquisitions (M&A) transactions. Things like that are top of mind for a lot of our clients.”
Looking specifically at M&A activity, Towle said that the company has been seeing a lot of its clients, especially some of the larger ones, still making acquisitions, or even spinning off divisions that might not be their core competency as they look at their overall risk management profile and evaluate where they want to be placed in terms of their expenditure.
She pointed out that there has been private equity investments in a variety of different industries, from insurance to manufacturing, which have brought in changes and made management ponder how does a captive play into that—how long is the investment in a captive from a private equity standpoint?
Captive insurance demand
According to Towle, the number of captives in the general market is continuing to grow and, in her view, this will go on throughout 2023 and even into next year, with continued new formations. This is despite the fact that the cost of entry into the captives space, whether it’s rent-a-cell, a single parent captive, or joining a group, has certainly increased over time and that in the past some organisations such as SMEs had historically thought it was too cost-prohibitive to join.
However, she said, in a current rent-a-cell situation, you could start a captive probably for under $50,000 to $60,000, adding that with capitalisation, especially in rent-a-cells that have a sponsor that helps support that capitalisation, this reduces the cost of entry.
Towle thinks the marketplace is certainly coming down to what she would call a lower level for people who need a risk management tool such as a captive, and she thinks growth is going to continue in that space. However, she added, there are publicly traded companies that are exploring the captives space, that maybe had captives in the past which they’re now revisiting.
She agreed that it would be fair to say that captives are increasingly viewed not as something that’s exclusive, but more of a potential tool in the box that can be removed and used for the correct time—and then if need be returned to the toolbox.
“What’s important today is that it’s much easier, with the captive-friendly legislation in a lot of domiciles, so if that tool doesn’t fit now you could basically sit it on a shelf, or make it dormant,” Towle said.
“The future will be more cyclical—putting a captive into dormancy is a lot easier in many domiciles today than it was 10 or 20 years ago. The cost of shutting down and restarting in the past could be exorbitant, but today, it’s much easier—it’s a case of ‘let’s keep it and then use it when it makes sense’.”
Pick a domicile—but not any domicile
Towle pointed out that the number of domiciles in the US continues to increase, with Iowa being the latest to join the list, adding to the potential options for companies that are considering the creation of a captive.
States such as Vermont, where there is a long history of being extremely flexible as a captive domicile, have a proven approach, Towle said. Vermont possesses the staff who can support the number of licences and applications the state receives and overall is able to evaluate a captive application, something that can make a difference from a domicile perspective.
In contrast she pointed to Kentucky, which passed legislation to be a captive insurance domicile, but then had difficulties. “They raised the red flag and said: ‘Stop, we can’t take any more captives. We don’t have the staffing and the manpower, to be able to examine these’.
“I would much rather see somebody admit that, versus the struggles you see with some of these domiciles where they don’t understand the captives market and don’t have the expertise.”
Hylant is now looking at Europe, with a possible announcement about new developments there for the company coming in July, as this publication went to press. She referred to the work that Alex Gedge, one of Hylant’s consultants and a member of Captive International’s FORTY Under 40 project, has been doing in London.
According to Towle, the company is looking to provide as wide a range of options as possible for its clients, whether onshore, offshore or based in a specific domicile that the client feels has the best regulation.
“We’re going to continue to invest where it makes sense and where our clients want to be domiciled and regulated,” she said. “We’re very excited about expansion, I think it comes naturally with the market right now.”
Towle pointed to Mexico as a possible area of interest for Hylant that makes sense due to that country’s border with the US, as well as an increasing level of curiosity in captives there.
However, as she pointed out, Latin America has historically been a challenging area for captives, even Mexico where there is double fronting in order to properly execute transactions, along with some of the different tax and regulatory restrictions and guidelines that have to be adhered to.
“There is a slow movement towards captives there,” she concluded. “They haven’t historically been a prominent tool in the insurance toolbox there, but I think they’re catching on, and companies are wanting to evaluate if they are an option.
“There’s going to be some growth through Latin America and Mexico. Here in the US, a lot of audits are being done by organisations which have operations in Mexico, so it makes financial sense to look at what they’re doing, and how they are insuring the risks there. How can we help to look at the aspects of captive insurance there?
“We’re working through that process, and I think it’s going to become a little easier and more user-friendly.”
Anne Marie Towle is Global Captive Solutions leader at Hylant. She can be contacted at: anne.marie.towle@hylant.com
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