"Building a Globally Fronted Captive": A Challenging but Potentially Rewarding Endeavor

Douglas Hardman, Marsh, and Andrew Baillie, AES Corporation captive, discussed the challenges, opportunities, and practice example of running a global fronted captive at one of the several education sessions held yesterday at the Vermont Captive Insurance Association Conference. Hardman presented what should be considered in creating a global program; choosing fronting insurer(s), local policy language, freedom of services versus local admitted policies in Europe, premium allocation, currency, reinsurance premium flow, foreign claims handling process, location of risk, local regulatory risk, insurance premium deductibility, and income tax impact. Baillie, director and property Risk manager of the AES Global Insurance Captive, presented multiple examples of what can happen in the daily operations of a captive owned by a global power producer and distributor that operates in 21 counties on 5 continents. The AES global captive staff of 8, supplemented by the assistance of numerous service providers, has a combined ratio of around 80 and saves its parent millions of dollars. The captive is Vermont based. The AES global captive operations provide an excellent model for consideration by corporations with global operations.