NJ Insurance News

Seeking Job Creation, States License Captive Insurance Companies

By Gregg Sgambati, President, NJCIA, May 12, 2011

In the mid 1970's, it took Bermuda just four years to grow its captive insurance industry 210%.  In the process the government taxed $2.5 billion in premiums, equivalent to $8.5 billion in 2011 dollars.  Noting Bermuda’s success, states adopted legislation to permit captive insurance companies in the U.S. and keep that tax revenue home.  This July, a part of the Dodd-Frank Act, the Nonadmitted and Reinsurance Reform Act, may lead some captive insurance companies located "offshore" to move "onshore" resulting in new tax revenues and jobs in those U.S. states with a captive insurance law.

According to Andrew Barile of Andrew Barile Consulting, “Over these 33 years [since 1978], the number of captive insurance companies has grown to 5,000; in the next three years, the number of captives will grow to 10,000 captive insurance companies, in a global insurance setting.”

Generally speaking, a captive insurance company is formed to cover particular risks of a business, a restricted group (i.e., doctor’s medical malpractice) or even a nonprofit.  While the risks covered has extended to areas such as cell phone warranties, the foundation of the industry rests in permitting companies or groups to only insure the risks of their constituents.  The insurance is often backed by multi-national reinsurance corporations and ultimately by the financial integrity of the captive’s owners.

Applying to form a captive insurance company requires careful planning.  Andy Barile, in a recent article, outlined the steps of the feasibility study that a company must present to regulators before its captive company application is reviewed.  The feasibility study normally includes risk modeling, a business plan, actuarial review, and of course loss and financial studies.  “Feasibility studies for a captive are required for every regulatory domicile,” writes Barile.  Following their formation, captive insurance companies are highly regulated: all states require regular reporting, actuarial support for reserves, independent audits and examinations every three to five years.

The New York Times' front page article intended to paint a controversial portrait of captive insurance companies.  The article puzzled many in the captive insurance industry and riled the 170 readers who were inclined to comment.  One should guard his emotions when he reads the catch-phrases dropped into the article such as a “secretive business," "a shell game," and "Bermuda-style financial wizardry."  And extra caution should be heeded if one were to listen to the NPR Program "The Takeaway" where host John Hockenberry self-proclaims this article to be a "big economic story" and goes on to suggest that it "echoes" John D. Rockefeller's secretive dealings with Standard Oil.  Thousands of captive insurance companies have been formed as part of an organization’s risk management strategy and in doing so, have helped balance owner's risks, improve balance sheets, and insure events that traditional insurance companies would not.

Those in the insurance industry will notice some erroneous information in the article (particularly in regard to reserves) and will lament the attempt to link the industry to the mortgage crisis.  Those reading with attention to detail will see that the article infers causality without evidence.

There is no doubt that scrutiny in any industry is a good thing and there has been interest in the captive insurance industry to discuss the scenarios referred to in the New York Times article.  However, the article is long on speculations and slightly high on spectacle.  One might say that it is difficult to present a case in a two to three inch newspaper column designed for a general readership, even by the well-respected writers of this article.  Perhaps if those affected by the industry made this a news event before the NY Times story, the interviews for the article would have elicited a more constructive response from state regulators and the industry.

Mahwah, NJ, March 21, 2011:   The New Jersey Captive Insurance Association (NJCIA) has announced its charter Advisory Board.  NJCIA's Advisory Board will provide strategic guidance and industry leadership from within the organization.  The association has also announced a new logo as its first step toward re-branding the organization for the newly enacted captive insurance industry.

Each charter board member is highly regarded in his or her area of expertise.  “The board’s high regard and standing within the industry will be beneficial for the association and the New Jersey captive insurance industry,” said Gregg Sgambati, President of NJCIA.  Since each board member has a different professional history, each will have an individual perspective on steering the organization.  Future board members will come from captive insurance companies.

“The association is honored by the involvement of our charter board members, some of whom are in linked to the beginnings of the captive insurance industry,” said Sgambati.  No short list of individuals has the expertise to “do it all.”  For this reason, NJCIA sought a board comprised of individuals with broad and exceptional industry expertise.  The Advisory Board members are:

Andrew Barile, President of Andrew Barile Consulting Corporation Inc. who has over 35 years of experience with an intricate knowledge of the insurance and reinsurance industries.

Harry M. Baumgartner, of Bressler, Amery & Ross, P.C. who has more than 20 years of experience as an attorney and legal executive in the insurance industry with a significant record of achievement in private and corporate legal practice including the creation and operation of captive insurance companies.

Leonard P. Crouse, CFE of The Towner Management Group who is one of the most respected professionals in the captive insurance world and who was the Deputy Commissioner and Director of Captive Insurance for the Vermont Department of Insurance for most of the past two decades.  Mr. Crouse holds an esteemed place in the history of captive insurance.

Christina Mancini, CEO/Partner, Captive.com who, after 16 years with Captive.com has seen Captive.com become a leading source of news and information about the captive insurance industry.

Herbert R. Selander, Jr., Managing Director, Marsh USA Inc. who has more than 40 years of experience in the insurance industry.  He has been a client executive for major Fortune 100 clients and is based in Morristown, NJ.

Nicholas H. Teetelli, Chief Executive Officer, Maple Technologies, LLC who has extensive experience in the insurance industry, spanning nearly three decades particularly in specialty insurance product development, design and implementation, and reinsurance intermediation.

Richard W. Wright, ARM, Senior Vice President, Willis Captive Consulting Practice who uses his deep industry knowledge to perform captive feasibility studies for his clients.  His background includes brokerage, consulting, and risk management with large property and casualty risk financing programs. Rick has helped form several new captives in various domiciles.

Goals for the board this year include cooperating with the New Jersey Department of Banking and Insurance, promoting the new captive insurance industry, and guidance on member development and the member benefits package.  The board will meet twice yearly and hold quarterly conference calls.

Gregg Sgambati has been involved in the captive insurance industry since 2006 and was previously an insurance producer.  His expertise is in business development and organizational leadership.  Having served as a leader of public service nonprofit for 7 years, he is now completing a Master of Public Administration at Columbia University’s School of International and Public Affairs.

New Logo

NJCIA has announced a new logo and branding strategy.  NJCIA’s new logos were graphically designed by the creative artists at Maple Technologies, LLC of Manalapan, NJ.  The logos recall George Washington’s historic Battle of Trenton from a time when New Jersey became known as the crossroads of the revolution.  In addition, the circular globe of the logo reflects the invention of the first commercially viable incandescent light bulb by Thomas Alva Edison at his Menlo Park, NJ laboratory.  The new logos may be seen at www.njcia.org.

For additional information, please visit www.njcia.org or contact Gregg Sgambati of NJCIA at (201) 252-2444 or gregg.s@njcia.org.

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New NJCIA Logos