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For Kathleen M. Ireland, vice president of global risk and insurance for IBM, the Armonk, New York-based technology company's sole captive insurer provides flexibility in a changing commercial insurance market.
IBM's captive, WTC Insurance Corp. Ltd., is domiciled in Bermuda. Ms. Ireland said the facility writes property coverage, only for IBM risks.
She makes clear that the captive doesn't exist to be a tax advantage.
“The reason we use it is to access the reinsurance market,” she said. “Rather than buying on a retail basis, we pay wholesale prices by having our captive being in front and having a reinsurance panel behind it.”
The captive allows IBM to retain more risk. “For example, there's a tremendous capacity in the insurance market right now,” she said. “But if that were to constrict, we have the ability to increase our retention within the captive, and so we've got control over what the pricing would be because we can keep it steady by taking more risk.”
The captive also provides program stability for IBM, according to Ms. Ireland. She said she works closely with the reinsurance panel on designing and obtaining the broadest terms and conditions in the captive form that IBM writes, and “then we get the reinsurers to follow the terms and conditions we've designed that we'd like to have them provide.”
IBM “leverages the strengths of all of (the underwriters) and brings them together as a whole in one form.”
The captive also provides funding to undertake all of the loss prevention activities and all of the engineering activities — a key component of IBM's approach to risk.
“We do on average 154 inspections (a year) around the world,” Ms. Ireland said. The captive also allows IBM to conduct natural hazard studies on catastrophe exposures and conduct appraisals. “Over time, if you keep indexing the value of your assets, you may end up saying that chair is worth $1,000. Maybe it is, maybe it isn't — we always want to make sure that the values we are reporting to buy insurance is the most accurate possible.”
Finally, the captive allows IBM to support the Bermudian insurance industry, said Ms. Ireland, because IBM buys insurance from Bermuda insurers on many programs.
Like countless other businesses in the Northeast, IBM felt the fury of October 2012's Superstorm Sandy.