South Carolina- maturing market
Matthew Broomfield
Although home to captives owned by Coca-Cola, 3M and members of Energy Insurance Mutual, and writing significantly more premium than all other US domiciles except
Vermont, its number of captive formations has lagged behind some other US domiciles in recent years.
Last year, South Carolina made a net gain of four captives, compared to Delaware’s 48, Utah’s 40 and Kentucky’s 25.However, this apparently slower
growth is a natural consequence of its more mature and established captive industry, says Peter Kranz, senior vice-president, Beecher Carlson Insurance Services (Vermont).
“South Carolina is currently transitioning from a younger domicile to a more mature one, a process that requires changes to a state’s regulatory resource
and management of captives,” says Kranz.
“Once domiciles reach a maturation point, the regulatory body, and everything else, is going to catch up and mature.”
Kranz says that as a result, South Carolina has retained its position near the top of US domiciles, despite the apparently higher growth among some other domiciles.
“To do well early on, there might be a tendency among domiciles to accept more business, to boost numbers and improve your profile. But as you mature, you start to tighten up a bit, and the
regulatory body improves, so it can provide a higher level service to those existing captives.”
As well as making things easier for existing clients, the domicile plans to broaden its captive legislation.
Expanding the cell
Legislation is pending that would allow South Carolina’s protected cells to incorporate, and would authorise noninsurance companies to sponsor cellular
captives. “We’ve listened to clients and captive managers and these are some of the things they’ve wanted,” says Jeff Kehler, programme manager of ARTS at South
Carolina’s department of insurance.
If passed in the second week of June, Kehler says the industry-sponsored Bill should allow for captives to have a combination of protected and incorporated
cells.
Kehler also thinks there might be interesting possibilities for covering healthcare in captives, following the impending Health Care Reform Act. “We’re
actively looking into how a captive might fit into healthcare reform. In fact we’re studying the possibilities at the moment.”
Risk retention groups (RRGs) are another area of change and interest, says Kehler, who is cautious about the effects of broadening RRG law to allow for property
coverages. “I think RRGs still provide a valuable service. But I have reservations when it comes to property, because it is a short-tail risk and usually requires a lot of reinsurance. That
places a lot of stress on a company.”
Competing with the ‘new wave’
Utah has been proclaimed by some as the US’s second largest domicile, following its net gain of 40 captives in 2010, which catapulted its number up to 188.
However, Kehler says such figures are only a partial representation of a captive industry’s size. “We tend to attract the larger companies, with a more visible profile, while some other
later domiciles deal more with state-town planning activities, and 831(b)s [mini-captives].”
With South Carolina’s more established reputation comes greater reputational risk, says Kehler. “We want to make sure our pristine reputation stays that
way, so we will continue to have a rigorous process for accessing new applications.”
Kranz says the domicile has also introduced many administrative enhancements, such as its regulatory board setting up a website for captive managers to use. Managers
can now email the regulator about new coverages or requests for approval for business plans. “If you’ve automated that process into an electronic form, there’s a mechanism to
track it at the regulator’s end, so applications and enquries might be easier to monitor,” adds Kranz.
South Carolina statistics
Active captives (at 31/12/2010): 160
Total assets: $44.5bn
Total C&S: $8.6bn
Direct and assumed premium: $3.5bn
Minimum, capital & surplus requirements:
(“We reserve the right to require additional based on the plan of operation, nature of risks to be insured, etc.,” - Jeff Kehler.)
Pure captive: $250,000
Association captive: $750,000
Industrial insured captive: $500,000 (includes risk retention groups)
Branch captive: $250,000
Sponsored captive: $1m. Under certain circumstances may be reduced to $300,000
Special purpose captive: an amount determined by the director after giving consideration to certain factors such as plan of operation, nature of
risks to be insured, etc.
Special purpose financial captive: $250,000
South Carolina coastal captive: $2m. Under certain circumstances may be reduced to $1m
SOUTH CAROLINA
Furthermore, the domicile hopes to boost its special purpose financial captives (SPFC) sector with a recently introduced funding programme.
The South Carolina Insurance Funding (SCIF) programme will allow insurance companies to use the Jobs-Economic Development Authority (JEDA) to raise millions of
dollars through taxable state bonds to secure long-term insurance policy reserves.
“We believe this will allow us to continue to promote South Carolina as a leading domicile for all types of captives, as we again will illustrate the ability to
bring new solutions and new regulatory considerations to the insurance industry,” says Kenneth Johnson, president of SCIF.
Johnson sees a much bigger need for the life, annuity and P&C industries to have greater access to the capital market, and says SCIF is already developing
business partners that will work with them to develop the business model. “Long term, we do see other captive industry domiciles looking to follow South Carolina in a new method by which they
can bring new jobs and new business to their state,” adds Johnson.
Client friendly
The domicile is likely to become more competitive when it publishes a procedures manual that it is currently putting together, says Kranz. The manual was sent out to
the industry for review and comment in early 2011. According to Kranz, it leads the reader through many events, such as if you change your auditor, or you want to change a line of business, and
outlines the steps you should follow. “I think it is great idea; it is domicile-specific and says ‘here’s what you do’,” says Kranz.
Although some other domiciles have manuals, Kranz says none are as comprehensive as South Carolina’s would be. “It’s very specific, and covers a
comprehensive range of scenarios.”
Kranz says it would appeal to captive managers, captive owners and anyone else involved in the industry because it would minimise regulation-related uncertainty.
“If you go to a newer domicile, if you have to go back to the laws and legislation, there’s always going to be some vagaries, interpretations and influence from the captive regulator
that is not specifically outlined,” says Kranz.
“With this manual, you would know exactly what to do. So from an operational standpoint it should increase some of the efficiency of having a captive in South
Carolina.”
Increase text size
![BNY Mellon [North America]](/article_images/articledir_3397/1698882/1_80by80.jpg)
Be the first to comment on this article!