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BURLINGTON, Vt.-As the commercial insurance market has changed over the past three decades, the way captive insurance company sponsors use their captives has changed, too.

And, though more than once through the years various events were expected to spell the end of captive insurance, the continued growth of captive insurance as a risk financing tool has betrayed those prophecies of doom.

Offering insights on captive use going back into the mid-1970s, an elite panel of risk managers-all Business Insurance Risk Managers of the Year-offered their views on "Three Decades of Captives" Aug. 13 at the Vermont Captive Insurance Assn.'s annual conference in Burlington.

Kathryn J. McIntyre, publisher and editorial director of Business Insurance in Chicago and the session's moderator, recalled that in the 1970s captive sponsors all seemed to be large multinational corporations and that the articles in the magazine about captives all seemed to revolve around tax decisions expected to sound the death knell of captive insurance.

In the 1980s, many predicted that insolvencies in Bermuda would prompt captives' demise, Ms. McIntyre noted. But the hard market later in the decade prompted captive growth that continues today, despite an extended soft market.

Richard C. Heydinger, director of risk management at Kansas City, Mo.-based Hallmark Cards Inc., noted that Hallmark's captive formation followed examinations of hard market strategies in 1983 and 1984.

Formed in Vermont in 1984, Hallmark's captive proved to be "a very valuable tool" when the hard market hit, Mr. Heydinger said. Mr. Heydinger noted that Hallmark was very sensitive to liability risk, carrying "hundreds of millions" in limits in the 1980s. But when the market hardened, the company could find only a fraction of that coverage available, and that at rates several times higher than what it had been paying for the much larger limits.

Hallmark's captive provided needed capacity, direct access to reinsurers, helped plug coverage gaps and kept Hallmark's coverage form broad, the risk manager noted.

Obviously, however, today's market isn't the same as the one Hallmark and many other companies faced when they first formed their captives.

"Today's HPR rates, if it's not at the bottom, I don't know where the bottom is," Mr. Heydinger said. While the captive played a big role in Hallmark's highly protected risk program for five years, now the HPR program is back in a more traditional insurance structure.

But, he said, Hallmark has used the captive as a "market counterbalance" and a loss-control vehicle and, while the company could accomplish many of the same things by self-insuring, Hallmark likes the financial discipline the captive provides.

With a recently enacted Vermont law allowing captives domiciled there to write related unaffiliated business, Hallmark also is using its captive to reduce the insurance costs of business partners.

John A. O'Connell, past executive director and risk manager of Holy Cross Shared Services Inc. in South Bend, Ind., noted that when Holy Cross formed its first captive in Colorado in 1976 it was out of necessity-at the time insurance carriers were coming to it with 300% to 400% premium increases for medical malpractice and professional liability coverage.

"I would like to sit up here and think that our move into a captive was a brilliant financial decision on my part," Mr. O'Connell said. "It wasn't. We were at the point of no return. We had nowhere else to go."

But, at a time when the hospital system's loss-control efforts were "very poor," according to the former risk manager, the coverage the captive provided was structured in a very loss-sensitive way.

"We also established at that time an extensive loss-control program to supplement the fact that we were going to go in and charge you on a very loss-sensitive basis," he said. The captive's role in promoting that loss-control focus continues to pay dividends.

"One of the important parts of having the captive is that it gives you this loss information," Mr. O'Connell said, noting that that information plays a key role in helping to control exposures.

The hard market of the 1980s also prompted Con Agra Red Meat Co., Monfort Inc., to form its Colorado-domiciled captive in 1986 to write umbrella liability and directors and officers coverage. The captive also helped the company control claims, said Lucille A. "Lucky" Gallagher, former vp-risk management for the company.

Judy Lindenmayer, vp-Fidelity insurance and risk management at FMR Corp. in Boston, noted that as her company experienced rapid growth in the 1970s, one of the most expensive areas of its insurance program was errors and omissions and directors and officers coverage.

But because the company, better known as Fidelity Investments, had never had a claim, "every year we were sending quite a bit of money away," she said. The company's response was to form a Bermuda-domiciled captive.

"For us it hasn't been about loss control, and it hasn't been about taxes, but it has been about keeping the money at home and broadening the coverages and making sure the units have the appropriate limits for the risks that they have," Ms. Lindenmayer said.

And Fidelity recently has started doing third-party business in its captive through a pooling arrangement called Green Island Reinsurance Pool, which took effect Jan. 1 and already represents more than 50% of the premium brought into the captive. "It's a new arrangement," Ms. Lindenmayer said. "I can't give you a critique on it."

Responding to questions about the attractions of various captive domiciles and whether there was room in the captive insurance universe for more domiciles, Ms. Gallagher, now CEO of Human Resource Risk Management L.L.C. in Greeley, Colo., said she believes companies should be able to locate captives where their headquarters are.

That's the case with her former company's Colorado-domiciled captive, and she hopes the state will become more serious about its role as a captive domicile in the future.

"I'm hoping that we can get Colorado to be a little more interested in captives," Ms. Gallagher said. "Part of the problem is getting the Legislature to understand the need for people in the Insurance Department to make this work, and that's one of the things that Vermont has done quite well."

What turned Hallmark off to Colorado as a domicile was that state's "inconsistency" in its attitude toward captives, Mr. Heydinger said. But he's glad other domiciles, such as Colorado and Hawaii, are there to push Vermont along.

"What I've seen in Vermont is they benchmark themselves against Bermuda primarily and the Caymans and other domiciles out there," he said. "That's what I like about the competition, the constant benchmarking that goes on that drives everybody to be as good as they can be."

The panelists agreed that having captives has made them better risk managers in a variety of ways, forcing them to develop ways to better analyze losses, reserves and the performance of third-party administrators.

"It certainly has given us an appreciation for the kinds of information that underwriters really need to have, compared to some of the information that underwriters continually ask you for," Ms. Lindenmayer said.

Patrick T. Driscoll, vp at Zurich-American Insurance Co. in Schaumburg, Ill., coordinated the session.