Home Court Advantages

Risk & Insurance, April 16, 2001 by Matt Damsker

Are there too many captive insurance company conferences and not enough new information to make them worthwhile? It's a fair question, especially now that captives are more top-of-mind than ever before, what with a hardening market for traditional property/casualty insurance.

For the world's leading captive domicile--Bermuda, in case you were wondering--it doesn't seem that there can ever be too many venues to trumpet the island's much vaunted regulatory and tax advantages, along with its solidity as a world-class financial services mecca. Thus, Bermuda's captive establishment wasn't particularly perturbed that the recent Captive Insurance Company Association (CICA) conference in Indian Wells, Calif., proved something of a showcase for upstart captive domicile South Carolina, arguably at the expense of the more established domiciles--notably Cayman, Vermont, and Bermuda.

Indeed, South Carolina's fledgling captive promoters have been getting a fair amount of attention in the trade press as they move aggressively to bring captives into the Palmetto State. Now they've even introduced some unique legislation to permit big reinsurance companies to discount some loss reserves via South Carolina captives. (We'll have a report on the South Carolina captive movement in our May issue. So stay tuned.)

At the CICA confab in Indian Wells, the usual afternoon breakout session of various domicile reps stationed around the meeting area seemed tailor-made for a bit of Palmetto hype. While Bermuda, Hawaii, Vermont, Cayman, and the rest of the captive establishment drew scant attention, South Carolina's station was a beehive of curiosity for attendees.

So it goes, especially for domiciles like Bermuda, which have done such a strong job of making their customers and potential clients aware of their offerings that more hype seems superfluous.

Still, Bermuda has a nice home court advantage in the upcoming ICAP (International Captives Congress) slated for June 12 through 15 at the island's premier hotel property, the Fairmont Southampton Princess. This will be ICAP's fifth annual go-round (with Risk & Insurance continuing as its lead sponsoring publication). In addition to overviewing the sort of captive issues that have been thriving of late on the conference circuit (notably, how to do employee benefits in captives), it should attract the usual cream of Bermuda-based captive, government and insurance leaders.

And it doesn't look like any thunder is going to be stolen, since ICAP is wisely avoiding another hypefest session for the various competing domiciles. For ICAP info, the Web site is www.ibcusa.com/ ICAP, or call (508) 616-5550.

BERMUDA SHORTS: An intriguing bit of news surfaced recently, when Ace Ltd. announced that John Charman had rather suddenly departed as the group president and CEO of Ace's International Group. Only about a month earlier, Charman had been named to the post by Ace Ltd. CEO Brian Duperreault, along with a number of executive changes.

Now, Charman's apparent ouster is attributed, according to Duperreault (as quoted in Ace's official statement) to "a result of differences between us over personnel matters." Thus, the heads of the five business units that Charman was running--Ace Global Markets, Ace Europe, Ace Far East, Ace Asia Pacific, and Ace Latin America--are now reporting directly to Duperreault.

An Ace spokesperson would only say that "these matters developed after Mr. Charman's promotion on February 1 ..." But at least one Bermuda insider suggests that Charman may have gone too far in dismissing several staffers who have now apparently been reinstated. "And so a perfectly sensible interpretation is that there was a disagreement over the size of, and the depth of control he had over, his empire," said an unnamed source.

Meanwhile, Bermuda's Sovereign Risk--which is a 50-50 joint venture between Ace and XL Capital Ltd., the island's two mega-insurers, to underwrite political risk--inked an impressive deal earlier this year. Not only did it write its first political risk policy for a capital markets transaction, but the deal is touted as the largest such transaction to date.

The policy covered a $234 million offering of notes, or bonds, issued by the Salta Hydrocarbon Royalty Trust of Argentina. Sovereign's cover will not only mitigate the risks but also allow the bond issue to attain an investment grade rating some three points higher than Argentina's state rating.

The $74 million policy is a 15-year cover for up to 31 months of interest payments on the notes against the risk of currency inconvertibility and currency nontransfer. The bond issue was underwritten by Lehman Brothers, Banco Macro, and Santander Central Hispano Investment and is rated by Standard & Poor's, Moody's and Fitch.

Fitch executive Mia Koo told the press: "We believe the Salta transaction marks two trends that will continue through 2001--Argentina provincial debt issuance and increased use of political risk insurance to mitigate sovereign risks."