Hard market of soft, captives keep streaming into Vermont: deregulation, flight to quality, demand for complex risk financing make Vermont more attractive

Risk & Insurance, April 14, 2003 by Thomas J. Slattery

As president of the Vermont Captive Insurance Association, Molly Lambert is a natural booster. She delights in repeating a colleague's description of captive insurance as "the Swiss Army knife of risk management." She also delights in noting that last year Vermont licensed 70 new captives, the most in the association's history. That was up from 38 captives in 2001, and 29 in 2000.

In 2003, she said, 10 new captives were formed there in January alone.

Long-term Growth

Rand Stretton, who is in charge of cash management and captive insurance for Chittenden Bank, Vermont's largest, said 70 captives have been formed in the state in the past six months. Captive portfolios there have jumped 50 percent over the past year. "But hard market or soft," he says. "Vermont adds at least 15-20 captives annually." He adds, "It's been a great run.

What's especially good about this, said Len Grouse, is that of the 70 captives formed last year, only 10 belonged to volatile risk retention groups. The 60 remaining captives--so-called pure captives--were formed by large corporations," he says.

Beyond this, the overall captive pie continues to expand. Soon, 50 percent of all commercial lines premium written in the United States will be in the alternative market. And as new captive domiciles come into being (as they have recently in South Carolina and the District of Columbia), this is viewed by most as a trend beneficial to all captive players to the extent that it brings the alternative market new visibility.

"The market will get bigger," says Rob Miller, a senior vice president of Dwight Asset Management Co., a captive service provider.

New domiciles won't take away from Vermont, said Miller, the former Vermont commissioner of economic development.

"I think Vermont will take an increasingly greater share of the market," he said. "But the size of that market will get bigger and bigger as captives become more and more mainstream, not just in property/casualty insurance, but in life and health as well."

Vermont Captives Licensed Per Year as of December 31, 2002


1981   1
1982   3
1983  10
1984   9
1985  10
1986  36
1987  51
1988  33
1989  21
1990  35
1991  25
1992  23
1993  22
1994  32
1995  17
1996  30
1997  27
1998  40
1999  35
2000  29
2001  38
2002  70

Source: Vermont Dept. of Banking, Insurance, Securities and Health Care
Administration

Note: Table made from bar graph

Tom Slattery is a business journalist. A former executive editor & publisher of National Underwriter and a former executive editor of Insurance Journal, he is currently managing director with Slattery-Esterkamp Communications, Baldwin, NY.