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Bermuda captive insurers expanding coverage, filling gaps

Bermuda captive insurers expanding coverage, filling gaps

SOUTHAMPTON, Bermuda—Mature captive insurance companies are looking for ways to effectively optimize capital from their structures and expand their operations by examining emerging coverage opportunities.

While identifying and quantifying gaps in coverage can be challenging, captive insurance structures can effectively fill in a lot of those gaps, William Montanez, director of risk management for Ace Hardware Inc. in Chicago, said during a session at the 2012 Bermuda Captive Conference held June 3-6 at the Fairmont Southampton Bermuda Resort.

Ace Hardware's Bermuda-based captive, New Age Insurance Ltd., was formed in 1996 and gives the retailer a vehicle to have assets to pay for losses, Mr. Montanez said.

“Any insurance risk is contained in the captive,” he said. “We have no insurance risk on the corporate balance sheet.”

As each Ace Hardware store is independently owned, Mr. Montanez is looking to enhance the coverage options for retailers and increase the risk program's retail market penetration, where 30% of the retailers participate in the program.


Assuming an organization has a surplus redundancy through its captive, there are many opportunities to increase retentions on existing underwriting programs, consider greater investment in equities or enter new lines of business, said Jim McNichols, Asheville, N.C.-based consulting actuary for Aon P.L.C.'s Aon Global Risk Consultants.

While there are many opportunities to expand an organization's captive in health care and health sciences, risk modeling techniques are required to assess key risk exposures of such an expansion—namely underwriting risk, reserve liability, interest rate risk, credit risk and equity investment liability, he said during the session, which was moderated by Robert Paton, executive vp at Aon Risk Solution's captive and insurance management practice in Hamilton, Bermuda.

“All those risks need to be analyzed and evaluated,” Mr. McNichols said. “Dynamic risk management techniques need to be deployed.”

Judy Hart, executive vp and head of insurance operations for Endurance Risk Solutions (Bermuda) in Pembroke, Bermuda, said health care, as an evolving risk, provides a unique opportunity to use captives.

“The captive is a real tool to expand coverage,” she said.

Mr. Montanez said that as Ace Hardware has a lot of equity on the books, the possibility of expanding coverage to include health care is an opportunity.


“We can deliver a lot of value, not only to the human resource department, but to the organization,” he said. “It's a win for everybody because we're delivering health costs.”

As hospitals adopt the employment model for physicians, some health systems are expanding operations to include the associated liabilities into their captives, panelists said during a separate session.

“Health care reform based upon quality measures and patient outcomes is the key reason,” said Mary Gutman, managing member of the Gutman Group L.L.C. in Dayton, Ohio. “Compensation models for physicians are now taking into account not only productivity, but also how well they play in the sandbox.”

Ms. Gutman said health care systems employing physicians need to consider compliance issues, employment agreements, accurate financials of the practice to be acquired, reputation in the community and infrastructure to manage the volume of physicians that will join the health system.

Erin Eldridge, corporate director of physician risk management at Catholic Health Partners in Cincinnati, said all physicians who join the program are placed in the captive.

“We're pretty draconian on that because it's important to us that we manage that risk,” she said during the session.


The health system includes 25 hospitals in Kentucky and Ohio, and it has moved 550 employee physicians into CHP's captive, Ms. Eldridge said.

For health systems considering expanding their captives to include employee physician liabilities, the first thing to consider is the physician's current coverage form and the health system's captive domicile laws, said panelist Merry Robinson, client service team leader at Brower Insurance Agency L.L.C. in Dayton.

“You need to make sure you have the appropriate licenser,” Ms. Robinson said.

“If you have a new captive, you may want to fund more conservatively,” she said, noting that when funding physicians through an organization's captive, different variances are available based on specialties.

“If you have a new captive, you may want to fund more conservatively,” she said, noting that when funding physicians through an organization's captive, different variances are available based on specialties.