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Hugh Rosenbaum Discusses the World Captive Forum, Then and Now

Hugh Rosenbaum
October 22, 2018

Editor's Note: The World Captive Forum (WCF) is set for January 30–February 1, 2019, at Turnberry Isle Miami. recently spoke with captive insurance expert Hugh Rosenbaum to discuss the event and to gain other valuable captive insurance insights. Read on to learn more, and register for the WCF today!

According to the timeline, "The History of Captives," which you compiled, in 1990 the first World Captive Forum was "held in New York City, it lasted nearly a week. Having tried Arizona and Florida, 25 years later, WCF settled on Florida and specializes in employee benefits programs in captives." 

The WCF is a domicile-neutral conference now in its 28th year. We understand that throughout the history of the conference you have played a key role in its success. Tell us more about the history of the WCF and how it has evolved over the years.

In the early days, we held the first WCF in New York City, with no exhibits and no sponsors. Risk Planning Group (later bought by Tillinghast, which became part of Towers Perrin and now Willis Towers Watson) and Felix Kloman were the main influences, with a link with Skandia and later Business Insurance completing the organizing group. Then, it was run for 3 full days, sometimes preceded by "basics of captives." The first day covered "general captive subjects"; the second, "technical captive subjects"; and the third, "reports from captive regions." Representatives came from Europe, Singapore, and even New Zealand.

Then, bowing to delegate demand, the Forum was moved to Florida, where it was held in November for many years. With that move came the expansion to exhibitors and sponsors, following the lead of other successful conferences in other areas. The main aim of the WCF became a neutral meeting place for airing and discussing the new developments for and against captives—the "against" usually being adverse taxation developments. 

Through the years, a few things stood out. One was the annual popularity of the "Basics of Captives" session that seemed to attract large breakout session audiences year after year and the tax sessions that were so popular we decided to hold them in a time slot that challenged delegates to stay awake after lunch. Nowadays, the "basics" sessions are condensed at the Forum because almost everyone knows them, and the tax sessions are less popular because the taxpayers are mainly interested in micro-captives.

The third set of sessions that stood the test of time were the WCF case studies, in which captive owners from around the world described how they had started their captives, finding original programs, and ways of using them. These case studies are still the most popular session at the WCF.

What differentiated the WCF from other captive conferences was the idea of concentrating on the emerging subject of employee benefits in captives, one that had been emerging as a predicted source of new captive business for many years.

The first captive owners used their captives primarily for property exposures. Casualty followed in what's now a fairly predictable pattern—the property and casualty "hard" markets drive formation of new ones and enlargement of existing ones. Not in the area of employee benefits (EB), though; as WCF followers have learned, captive owners get more value from information centralization and efficiency in these EB programs than cost savings alone.

It is interesting to see how the attendance at WCF started with the very large single-owner captives and is now extending to the smaller single-owner and group captive representatives. And many of their service providers, too, attend, of course. WCF attracts a lot of service providers and probably always will maintain its 40–50 percent ratio of buyers to service providers in its delegate count of 250–350 each year.

WCF has always succeeded in making the distinction that captives are not just insurance companies, they are also instrumentalities of self-insurance, and therefore the risk financing component of risk management also drives them. In the future, this divergence of position on captives will increase, as exemplified by the Europeans' captives being caught up in Solvency II (insurers) and multinational captives being used to control medical utilization and cost containment (risk management).

The conference website states that "the 2019 World Captive Forum will address new and emerging risks facing companies and organizations worldwide, demonstrating how captives can offer solutions that may not be available in the traditional insurance marketplace." Tell us more specifically how the conference approaches this goal.

The term "emerging risks" means those whose financial impact has started to attract the attention of risk managers (and eventually insurers) as exposures that may conceivably be financed in a captive insurance company. At first, these never are available in the traditional insurance marketplace, so innovative risk managers and captive owners have to develop their own coverages, forms, and rating plans for their captive programs. There are several notable examples of how these captive initiatives were eventually taken over by the commercial insurance market. In this year's WCF, there will be several captive case studies demonstrating some different approaches to risk financing problems, with indications of how their owners and managers worked them out.

The agenda offers a wide array of topics, such as small captives, healthcare liability captives, state regulation, reinsurance and fronting, employee benefits, cyber liability, innovation in cell structures, producer-owned captives, stop-loss in captives, and captives in Latin America. How will the WCF presentation of these topics offer a fresh perspective to delegates?

Although the subject matter seems the same in captive conferences, what makes them interesting is the way that these subjects are worked out in real examples and in real-life situations. The fresh perspective in the WCF is provided by the presentations that focus on practical experience and actual case studies. It is interesting to observe how many delegates return to the WCF and attend the same subject matter sessions to benefit from these new examples and new insights. Another way WCF offers delegates a fresh approach to captive "topics" is the way they are discussed at the roundtables, where informed moderators lead discussion among delegates, rather than making presentations.

On January 30, from 3:005:00 p.m., Dan Kusaila, tax partner, Crowe Horwath LLP; Jeff Kenneson, president, Quest USA; Robert Davidson, principal, Davidson Risk Consulting; and you will be hosting a preconference workshop: "Captives 201: The Fundamentals and Recent Developments." Tell us more about this session and why delegates should attend.

This session used to be called "Basics" but has become a session for updating basics: challenging and improving upon feasibility studies, types of captive structures, what risks to insure, how to manage fronting arrangements and reinsurance providers, and how to ensure a captive qualifies as insurance under the ever-changing Internal Revenue Service positions. Employee benefits in captives will be included, too. Led by seasoned captive industry experts, this session provides the material for meaningful discussions and even arguments among delegates for the rest of the conference.

On February 1, the final session of the conference, "Successful Captives: Three Case Studies," will be moderated by you. Tell us what conference delegates can expect to take away from this session.

One of the key sessions in the World Captive Forum program features case studies of successful captives. The emphasis is on "successful," and that's what delegates expect from it year after year. During this session, risk managers from three companies will provide detailed insights into why their captives were formed in the first place, how they demonstrate value added to their owners and participants, and some of the innovative uses they have found for them, as well as how they overcame potential obstacles. Among the captives featured this year will be one sponsored by a multinational company, a telecom company, and a construction company.

You've always been an advocate of group captives. How do you view their development in recent times?

I view their development with some disappointment. Big group captives envisaged or started by those in similar business or industry sectors didn't really catch on the way I thought they could have. Those with similar exposures (e.g., directors and officers or product liability) didn't, either. The main reasons were always the same: members' unwillingness to share each other's risks, because they didn't really understand the risks and exposures of their potential group members. These early efforts were driven by the more enlightened risk managers themselves. The ones that have succeeded and prevailed are still motivated by the buyers and risk managers. Group captive participants, or future participants, are the ones that get the most out of attending conferences such as WCF.

Why do you think organizations of captives haven't succeeded? Are the pooling arrangements for smaller captives an indicator that they are making a comeback? 

Those groupings of small captives should be an indication that group captives are making a comeback, but they are not the same as the risk-sharing initiatives of the past. These days, the developments in group captives seem to be driven by the promoters and managers of small captives. In this year's WCF agenda, there is a special session that will be looking in detail at these "pooling" efforts among small captives. Otherwise, it seems to me that cooperation among traditional single-owner captives is at a low ebb and will probably remain there until the new financial risk imperatives common to all captive owners bring them back to the "do-it-yourself" basics of captives.

What do you think was the single most important development for captives after the 2008 financial crisis? 

It was the reduction of investment rates to the lowest level ever experienced by captive investment managers. Investment income, in my view, has always diluted captives' real purpose to their owners, which is to support risk management and not to become more and more like commercial insurance companies. The rising investment returns, contrary to my personal view, are considered important enough to be one of the subjects discussed at a WCF roundtable.

Why do you think captive conferences have proliferated, and, in your mind, what makes a top-tier captive conference?

The promoters of domiciles and their managers need forums to lay out their offerings and to bring together the different service providers in their domiciles. That collegiality is a valuable local service. The top-tier captive conferences are those whose content attracts the owners and users of captives to attend. It's not necessarily the number of people who attend (up to 50 percent of whom are exhibitors or speakers!) that is the measure of success. I look for the percentage of owners or potential owners among delegates to be 40-plus percent, as it usually is at the WCF.

Should we expect any major changes to this year's event over past years, and what are some changes that may be in the works for future conferences?

This year's WCF follows the successful format of past forums. The changes delegates will find will be in how the "hot topics" of 2019 are addressed—be they regulatory, exposure, or taxation. And, for future WCF initiatives—watch for how WCF features the new financial paradigms and alternative financial techniques that will be brought into focus for transforming captives and how the interaction between commercial insurance and captive insurance takes on new dimensions.

Thank you, Hugh. It has been a pleasure.

Mr. Rosenbaum, pictured above, at left, is known for his definitive "History of Captives," his articles in Captive Insurance Company Reports and Captive Review, and his "Hugh's Views." He is a coauthor of the original monograph Generally Accepted Captive Standards. He was awarded the first Distinguished Service Award from Captive Insurance Companies Association and is an honorary member of the Vermont Captive Insurance Association. He is active in European domiciles and is still consulting to captive boards and owners. Mr. Rosenbaum also is a frequent panelist at captive conferences. He is best known for his efforts to demonstrate to finance directors, tax courts, and skeptical journalists the value added by captive insurance companies.

Copyright © 2018, International Risk Management Institute, Inc.

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