Christine Brown Outlines Captive Insurance Priorities at VCIA

Christine Brown, deputy commissioner of captive insurance at the Vermont Department of Financial Regulation, discussed innovative captive structures, artificial intelligence (AI), medical stop-loss, liability pressures, and reinsurance oversight during an audience-directed session at the 2026 Vermont Captive Insurance Association conference.

The session was moderated by Richard Cutcher of Captive Intelligence and also featured Andrew Baillie of AES Global Insurance Company and John Truxillo of Wells Fargo. Audience members ranked innovative trends as the topic of greatest interest, followed by AI in insurance; employee benefits and medical stop-loss; social inflation, the liability market, and litigation funding; and captive reinsurance.

Courtesy photo of Christine Brown

Captives Reconsider Existing Structures

Addressing the audience's top-ranked topic, Ms. Brown said medical stop-loss continued to generate activity among both new and existing captives. She also highlighted an increase in captive insurers reassessing whether their current legal structures remain appropriate.

Vermont has seen pure captives convert into sponsored captives or risk retention groups, as well as individual cells convert into pure captives. Ms. Brown said Vermont law allows a captive to convert from one structure to another while continuing its existing business plan.

Some organizations are converting to sponsored structures to segregate risks associated with an acquisition or other business activity. Others want to retain their own risks in one cell while offering coverage to controlled unaffiliated business partners through separate cells.

"The captive shouldn't be set it and forget it," Ms. Brown said, noting that captive owners and their advisers should continue evaluating new ways to use their programs.

Ms. Brown also addressed regulatory discussions concerning captives that insure or reinsure third-party risks. She said Vermont is participating in a National Association of Insurance Commissioners (NAIC) working group considering which insurers should fall within the NAIC accreditation framework.

Ms. Brown said captive regulators must continue explaining the distinction between traditional captive reinsurance arrangements and commercial insurance activity. She emphasized that captives are formed primarily to insure the risks of their owners or members, although controlled unaffiliated business may also be included when an appropriate relationship exists.

Vermont Considers AI Risks and Opportunities

Turning to AI, Ms. Brown said Vermont is one of 12 states participating in an NAIC pilot program examining how insurance companies use AI. The initiative considers issues such as governance, data inputs and outputs, and the audit trails associated with AI systems.

The Captive Insurance Division does not plan to send captives the same extensive survey used in the pilot program, Ms. Brown said. Instead, Vermont intends to tailor questions during examinations to determine how captives and their third-party service providers are using AI.

Regulators are particularly concerned with possible bias in models, the quality of the underlying data, governance policies, and whether organizations are appropriately testing AI systems, Ms. Brown said. The division also wants captive boards to understand the cyber-security and AI-related risks presented by service providers.

Ms. Brown said Vermont already publishes aggregate captive data annually and could consider making anonymized information available to support AI development. However, she stressed that the department would not disclose confidential information about individual companies.

The department would also like to expand its own use of AI tools, Ms. Brown said, although confidentiality obligations and the pace of technology adoption within state government create additional considerations.

Medical Costs Require Underwriting Discipline

Ms. Brown said medical stop-loss differs from many other captive coverages because of the involvement of the US Department of Labor and the requirements of the Employee Retirement Income Security Act.

Medical stop-loss coverage does not insure employees directly. Instead, it covers an employer that has assumed part of the risk through a self-insured health plan, she explained.

Rising healthcare costs and increasing medical loss ratios require captive owners to exercise underwriting discipline, Ms. Brown said. Rather than relying heavily on 10 years of historical experience, organizations may need to give greater consideration to current trends when pricing medical stop-loss coverage.

Liability Claims Remain Difficult to Predict

Social inflation, nuclear verdicts, and litigation funding have made liability risks increasingly difficult to predict, particularly in medical professional liability and commercial automobile and trucking coverage, Ms. Brown said.

She recommended building conservatism into pricing and considering additional capital funding when a captive adds these risks to its business plan. Ms. Brown also warned that bad-faith claims can result in payments above policy limits and quickly create financial difficulties.

Ms. Brown said Vermont has guardrails governing litigation funding. A financing party cannot participate in decisions concerning the outcome or settlement of a case, and certain disclosure requirements apply.

She also noted that some states have adopted or considered rules requiring disclosure of who is financing litigation. Such requirements could provide insurers with information comparable to the policy-limit information they may be required to disclose, Ms. Brown said.

Reinsurance Quality Remains a Regulatory Concern

On captive reinsurance, Ms. Brown said Vermont considers the credit quality of reinsurance partners an important part of a captive insurance program. The department issued guidance earlier in 2026 clarifying how it reviews reinsurance arrangements.

During renewals, Vermont expects captive boards, brokers, and other service providers to evaluate the quality of prospective reinsurers. The department generally wants to understand the captive's retained risk when a revised reinsurance program is submitted, Ms. Brown said.

As part of its annual analysis and examination process, the department reviews material reinsurance recoverables and may examine a reinsurer's financial strength rating or request financial statements.

Ms. Brown said responsibility for evaluating reinsurance security also rests with the captive's board and advisers. She agreed with the other panelists that reinsurers should be treated as long-term partners, particularly when claims require collaboration on strategy and settlement.