The
Captive Insurance J O U R N A L
2nd Quarter 2012
I N
T H I S
I S S U E
Page 2 Benefits of Life Insurance in a Captive
Page 3-6 2012 Conference Information and Schedule
Page 7 Captive Academy / Continuing Education Credits
Page 8 2012 Conference Featured Speaker: Dr. Patrick Hickey
Page 9-10 2012 Conference Educational Sessions
Page 11 2012 Conference Educational Form
Benefits of Life Insurance in a Captive Adding Life Insurance to a P&C Captive can result in many benefits for the captive and its owner. — By Jeffrey Altman, FSA, MAAA Bartlett Actuarial Group
Why Would a Corporation Purchase Benefits Through a Captive? Captive insurance companies are formed to insure the risks of the parent corporation (single parent captive), companies that are part of an affiliated group (group captive), members of an association (association captive) or an agent or brokerage group. The most common form of insurance coverage issued by the captive insurance companies in today’s market place is property and casualty insurance. There is a large untapped market for captive insurance companies to provide specific life insurance coverages to achieve valuable risk and financial objectives. The reasons to form a property and casualty captive insurance company are generally well known—a partial list includes obtaining insurance with reduced reliance on the commercial marketplace, a lower premium which reduces the cost of the risk, an ability to design customized insurance programs, an ability to direct the investment option, the creation of a profit center providing the company with the ability to earn an additional source of profits, and access to reinsurance and capital markets.
The same reasons and strategic benefits obtained by a P&C captive would be applicable to a life insurance transaction. Recent ERISA legislative developments, rising employee benefits, and the need for unrelated business have increased the number of the employee benefits placed in captives. The list of insurance coverages typically include retiree medical coverage, stop loss medical, group term life, disability and executive retirement plans.
Why Would a Corporation Purchase Life Insurance? The purpose of this article is to propose that another major coverage that could be added to a P&C captive is Key Man and Corporate Owned (COLI) Life Insurance. Typically, these coverages do not fall under ERISSA regulations. Key Man Policy: Policy benefit payments received by the company under a Key Man Life Insurance policy can be used to provide protection against financial loss resulting from the death of a key executive.
The Captive Insurance Journal Second Quarter, 2012
Benefits of Life Insurance in a Captive (continued)
Managing Editor Laura Stuckey Design/Graphics Florence Design, Inc. Editorial and Advertising Office PO Box 1763 Columbia, SC 29202 855-CAPTIVE
SOUTH CAROLINA CAPTIVE INSURANCE ASSOCIATION 2012 DIRECTORS & OFFICERS Chairman of the Board Thomas A. Brumgardt Nelson Mullins Riley & Scarborough, LLP Treasurer/Corporate Secretary Andrea Bartlett Bartlett Actuarial Group, Ltd. Directors Randy Collins Koppers Assurance, Inc.
Corporate Owned Life Insurance Policy: The amounts received from a Corporate Owned Life Insurance policy can be used to pay for Deferred Compensation payments to employees and to fund other long term commitments of the company.
What Additional Benefits Are Generated by having a Captive Issue COLI and Key Man Policies to its Parent? A variable COLI policy or Key Man Life Insurance contract issued by the captive provides financial benefits to the captive insurance company and its parent company. These additional benefits include the ability to earn additional underwriting profits, flexibility in defining life insurance benefits, and the issuance of the insurance at a much lower cost structure. In addition, the investment options present under a variable COLI life insurance policy provides the ability to earn equity investment returns present with stock market portfolios.
Is There Favorable Tax Treatment for Life Insurance Policies Issued by a Captive? To receive favorable tax treatment for a COLI or Keyman life insurance policy, the death benefits, policy loan proceeds, and the inside build up of cash surrender value of the life insurance contract must meet specific internal revenue code requirements directed to life insurance contracts. In addition, assets supporting the variable life insurance contract must meet requirements for asset diversification contained in the portfolio, and there must be lack of investor control by the policyholder over the purchase and sale of the individual investment holdings in the separate account investment portfolios. There are other considerations when adding life insurance coverage to a captive. Important disciplines to assist in this endeavor are an experienced life actuary, captive manager, investment manager and tax consultant.
Michael Coulter Aon Insurance Managers (USA) Gavin Foggon Marsh Management Services Inc. Margie Heggie SC Physician Assurance Co. / SCMA
Congratulations to captives licensed in 2012 Millbrook NMF Risk Retention Group
Chris Stormer Bauknight Pietras & Stormer, PA
Bridges Insruance Company, Inc.
Executive Director Andi Rawl
OrthoForum Insurance Company (A Risk Retention Group)
Old PICL Insurance Co. PICL Insurance Co. Bison Insurance Company Limited
Orthopedic Physicians Insurance Company Š Copyright 2012 SC Captive Insurance Association
2
NorthSouth Insurance Company Limited
The Captive Insurance Journal Second Quarter, 2012
13th Annual Executive Educational Conference September 17-19, 2012 Charleston Place Hotel South Carolina: Made
for Captives
SCCIA General Information Welcome to the Next Generation of the SCCIA as we host the 13th Annual Executive Educational Conference September 17-19, 2012 at the Charleston Place Hotel, Charleston, SC. This year’s conference continues the long tradition of enriching the knowledge of captive and alternative risk transfer professionals by presenting a cutting edge educational program. The Conference also offers the opportunity to network with like-minded industry professionals. Networking breaks, a hosted lunch, the golf tournament and other social events during the conference give you ample time to interact with your fellow professionals. Whether you are a seasoned veteran, new to the industry, a captive owner, a Risk Retention Group member, a captive Director, a service provider, or a risk management professional you will gain from attending the conference.
Conference Activities 4th Annual SCCIA Golf Tournament SCCIA will host a golf tournament with on Monday, September 17, 2012 ~ Patriots Point Links ~ 8:00 AM With four sets of tees ranging from 5100 to 7000 yards, players of all skill levels will enjoy this Willard Byrd designed links course on the Charleston Harbor. A South Carolina tradition since 1979, guests will enjoy great service, and the perennially awarded “Best Par-3 in the Lowcountry” 17th hole, an island green poised in the Charleston Harbor with sweeping vistas of Fort Sumter, Shem Creek and the historic downtown skyline. This is a golf hole that will not be forgotten. The ever-changing wind that typically sweeps across the harbor can make the course play take on a completely different perspective from one round to the next. This links style par 72 championship course was also rated “South Carolina Course of the Year for 2001” by the National Golf Course Owners Association.
3
The Captive Insurance Journal
C
Second Quarter, 2012
S
Networking breaks, a
13th Annual Executive Educational Conference
(continued)
Conference Activities
DONATE
NOW
As part of the SCCIA’s legislative efforts moving forward, CIPAC (Captive Insurance Political Action Committee) was formed in order to be collectively represented as an industry as it relates to legislative matters. For more information and Pledge Form go to our website www.sccia.org or contact the Association Office at 1-855-CAPTIVE.
Donate online at www.sccia.org.
Welcome to Charleston Cobblestone, sand & water provide endless opportunities. Famous golf courses, top-rated tennis courts, pristine beaches, monumental battleships and beautifully preserved architecture barely scratches the surface of attractions in Charleston. You can be as adventurous or as tame as you like. Best of all, our mild climate means you can enjoy most of our sights year-round. You may want to consider bringing extra film. Stand on the site of the first shot in the Civil War. Come face to face with a giant sea turtle. Take a tour of an antebellum mansion. Climb aboard a WWII aircraft carrier. There are so many blossoming gardens, so many photo opportunities and so many reasons to come back to see us again. Getting there is half the fun. There seems to be no better way to see all the sites in the Charleston than to embark on one of the many sightseeing tours. Whether by land or sea, Charleston offers plenty of special interest tours to learn all of the rich history of the area. Whether you prefer to stroll down quaint alleyways by foot or trot through the streets in a carriages, all paths lead visitors on an unforgettable journey back in time. You’ll be entertained and enlightened by knowledgeable guides giving tours on foot, by carriage, by van—even by boat! You found the perfect piece a dozen times. Delightfully different shopping is one of the most often mentioned reasons for visiting the Charleston area. You'll find indigenous local crafts, unique specialty shops, and antiques galore—plus, a wide variety of high-end retailers.
4
The Captive Insurance Journal Second Quarter, 2012
13th Annual Executive Educational Conference
(continued)
Executive Educational Conference Schedule Monday, September 17, 2012 8:30 a.m. 8:00 a.m. - 4:00 p.m. 12:00 noon 4:30 p.m. 5:00 - 6:30 p.m.
Conference Golf Tournament ............Patriot Points Links Captive Academy Registration SCCIA Annual Membership Meeting Welcome Reception
Tuesday, September 18, 2012 7:15 - 8:00 a.m. 8:00 - 8:30 a.m. 8:30 - 9:30 a.m. 9:30 - 10:30 a.m.
10:30 - 10:45 a.m. 10:45 - 11:45 a.m. 11:45 a.m. - 1:30 p.m. 1:30 - 2:30 p.m. 2:30 - 2:45 p.m. 2:45 - 3:45 p.m.
3:45 - 4:00 p.m. 4:00 - 5:00 p.m.
5:00 - 6:30 p.m.
Networking Breakfast Welcome Remarks ..............................SC Governor, Invited Insurance Cycle ..................................Speakers TBD Getting It Done: Employee Benefits (International and US Domestic) Mitch Cole, Towers Watson; Stacy Apter, The Coca-Cola Co. Morning Networking Break Interactive “Rating” Committee..........AM Best Analysts Luncheon & Keynote Presentation, Dr. Patrick Hickey Climbing Your Own Everest: The Seven Summits of Your Life Fixed Income in a New World ............Jeffrey Rosenberg, BlackRock Afternoon Networking Break BREAKOUT SESSIONS Healthcare Reform Impact for Captives: Opportunities for Marketing & the Liability for Healthcare Organizations Jim Saxton, Stevens & Lee The New Normal: What It Means for Collateral Requirements? Caroline Cruickshank, BNY Mellon Afternoon Networking Break BREAKOUT SESSIONS Update on RRGs / NAIC Leslie Jones, SC DOI; Julie Robertson, Honigman; Tom Brumgardt, Nelson Mullins Trends in Captive Industry / Captive Strategic Review Charlie Woodman, Willis Networking Reception
5
The Captive Insurance Journal Second Quarter, 2012
13th Annual Executive Educational Conference
(continued)
Wednesday, September 19, 2012 7:15 - 8:00 a.m. 8:00 - 9:00 a.m.
9:00 - 10:00 a.m. 10:00 - 10:15 a.m. 10:15 - 11:15 a.m. 11:15 a.m. - 12:00 p.m. 12:00 noon
Networking Breakfast Advanced Tax / Dodd Frank Act Dan Kusaila, Saslow Lufkin & Buggy Tom Jones, McDermott Will & Emery Sarah Stubbs, Johnson Lambert & Co. Evolution of Board Governance Best Practices Tom Brumgardt, Nelson Mullins & Barry Couch, Healthsure Morning Networking Break Loss Portfolio Transfers / Novation / Commutation Agreements Josh Bartlow, Johnson Lambert & Co. Pure Captive / SPFC / RRG / Service Provider Roundtables Conference Concludes
LOG ON TO
WWW.SCCIA.ORG TO ACCESS REGISTRATION, SPONSORSHIP INFORMATION, HOTEL WEBSITE AND MUCH MORE.
6
The Captive Insurance Journal Second Quarter, 2012
Captive
Academy
S E PA R AT E R E G I S T R AT I O N R E Q U I R E D
Applying for 7½ hours of Continuing Education Credits (CLE, CPE, DOI, ICCIE) This is an all day course which will start at 8 am with networking and introductions with breakfast refreshments. The faculty is comprised of 7 active South Carolina providers who will be instructing the attendees on their specialty. The faculty has combined insurance and Captive formations experience of more than 180 years. We will have a working lunch (provided in the registration fee) and end the session promptly at 4 pm. The President of the SCCIA and the Director of Insurance for the State of South Carolina will be at the closing to award Certificates of Completion. The course will cover how a captive is formed from the feasibility study, the role the actuary, CPA, bank, captive manager, legal counsel, and investment adviser plays in the formation and the daily operation of a captive and why they are so important to the State of South Carolina.
FACULTY Ron Krebs, License Coordinator, ARTS South Carolina DOI Thomas Anderson, Senior Vice President, Wells Fargo Bank Linda Danna, Senior Vice President, Account Executive, Marsh Management Services F. Ronald Dennis, International Financial Advisor, Dennis Johnson Folline King Group Legare Gresham, Consulting Actuary, Bartlett Actuarial Services Daniel Kusaila, Tax Partner, Saslow Lufkin & Buggy John P. Seibels, Jr. (Jay), Founder and Managing Partner, Seibels Law Firm
TENTATIVE AGENDA 8:00 - 8:30 a.m. 8:30 - 9:30 a.m.
9:30 - 9:40 a.m. 9:40 - 10:40 a.m.
10:40 - 11:40 a.m. 11:40 - 11:50 a.m. 11:50 a.m. - 1:30 p.m. 1:30 - 2:30 p.m. 2:30 - 2:40 p.m. 2:40 - 3:10 p.m. 3:10 - 3:40 p.m. 3:40 - 4:00 p.m.
Riviera Theatre
Welcome & Introductions Captive Manager Role from Conception, Feasibility Study, Initial Meeting, Proformas to the Application Process, Licensure and Daily Operation Break Actuary Role - from How and Why to Interfacing, Daily Workings, to Best and Worst Scenario To Working with Outside Reviewer of Submission to Opine to DOI Legal Role with Emphasis on Director / Officer Responsibilities and Duties Break Working Lunch (provided) with CPA, Tax, and Audit Roles Investment Role, What To and What Not To Do, Statutory Requirements & Guidelines Break Bank Roles & Services Regulatory Role Conclusion / Certificate Presentation
7
LOCATION: Charleston Place Hotel $259 / night / www.charlestonplacehotel.com 1-800-831-3490 / mention SCCIA COST: SCCIA / SCACPA MEMBER $250 NON-MEMBER $300 TO REGISTER: SCCIA Members and All Non-Members, go to www.sccia.org SCACPA Members, go to www.scacpa.org Questions, please call 1-855-CAPTIVE (855.227.8483).
The Captive Insurance Journal Second Quarter, 2012
SCCIA Featured
Speaker
Climbing Your Own Everest: The Seven Summits of Your Life Dr. Patrick Hickey In The Seven Summits of Life, Patrick Hickey says we all have the potential to do anything we want to do. Basing his presentation on his experience as the first nurse to climb the Seven Summits of the World, he emphasizes that those having reached the top have a responsibility to encourage others to tap into their potential so that they too may reach the top in their lives and their careers. Biography:
Dr. Patrick Hickey
“In The Seven Summits of Life, Patrick Hickey says we all have the potential to do anything we want to do.”
There are only 120 people in the world who have climbed the seven summits of the world. And, only one nurse, Patrick Hickey. A 32-year veteran healthcare professional, he not only overcame his personal challenge to climb the world’s highest peaks, he did it to inspire other healthcare professionals to overcome their challenges and achieve their highest goals in their line of work. “When I climbed the seven summits, I faced a lot of the same challenges that medical professionals face every day such as working in risky environments that require split-second decisions and teamwork. I learned quickly how to manage these challenges to achieve a goal and desired outcome.” Hickey has written 7 Summits: A Nurse’s Quest to Conquer Mountaineering and Life to tell how hard work, persistence, belief in self, and the support of family and friends can help anyone reach the top of the world. A motivational speaker, he parallels his experience with the broader perspectives of goal setting, dedication,
8
and the pursuit of challenge in the face of extreme adversity. In his interactive presentation, “7 Summits of Life,” Hickey tells the dramatic story about his record-breaking quest that led The New York Times to call him “a cross between Florence Nightingale and Indiana Jones.” Motivated by his passion for nursing, he hopes to raise awareness of the challenges facing modern healthcare while empowering other medical professionals with his seven point take away message for success. Audience members will be able to put these seven principles to immediate use in their careers. Hickey donates his honorariums from all engagements to the Summit Nursing Scholarship he has established at the USC College of Nursing.
The Captive Insurance Journal Second Quarter, 2012
SCCIA Educational
Sessions
The Insurance Cycle A panel discussion on where we are in the insurance cycle along with forecasts. David Langman, Swiss Re James Mounty, Miller Insurance Robert Reader, Guy Carpenter & Company, LLC
Getting It Done: Employee Benefits (International and US Domestic) Join these leading captive insurance experts as they provide insights on how domestic and international employee benefits can be placed into a captive. This seminar will also focus on best practices related to employee benefits coverage and next steps after approval. Mitch Cole, Towers Watson Stacy Apter, The Coca-Cola Company
Interactive “Rating” Committee, A.M. Best Company Steven Chirico, A.M. Best Company Nick Dranchak, A.M. Best Company Fred Eslami, A.M. Best Company Janet Hernandez, A.M. Best Company
Fixed Income in a New World Unprecedented policy intervention by global central banks, deleveraging in the private sector and continued fiscal challenges for the public sector the world over means the investment environment for fixed income has fundamentally changed relative to that prevailing during the previous 30 years. So too then should our investment strategies. We’ll review both this “New World” for Fixed Income investing and “What to do with insurance company money.” Jeffrey Rosenberg, BlackRock
Healthcare Reform Impact on Captives: Marketing Opportunities & the Liability for Healthcare Organizations In today’s healthcare environment the demonstrable ability to achieve clinical quality and safety benchmarks and implement performance measures is critical for both risk reduction and economics. Providers must be prepared to demonstrate to patients and payors alike that they are ahead of the curve on quality and safety performance as well as enhancing the “patient experience.” A strong professional liability insurance program may be well positioned to create just the platform your doctors need. This talk will review the link between opportunities for increased reimbursement – such as ACOs, shared savings programs, and bundling initiatives – and the capability to achieve high quality, high value, highly effective care. The ability to help providers identify, develop and implement these key success strategies will be an important value-added for potential insureds, and an important marketing strategy for professional liability programs. Why liability carriers? Because there are liability concerns as well! Let’s discuss preparing our doctors and hospitals for new delivery systems! Jim Saxton, Stevens & Lee
Trends in Captive Industry/Captive Strategic Review In this interactive session we will explore two questions that all captive insurance owners eventually ask:
9
The Captive Insurance Journal Second Quarter, 2012
ments to network and discuss issues vital to the
SCCIA Educational
Sessions (Continued)
1) Is our captive relevant to our needs, and 2) What are current uses and program enhancements that we should consider? We will offer various strategies being employed and discuss the potential issues. Areas may include employee programs, deferred compensation, emerging premiumbased taxation issues, segregated cell usage (especially in single-parent entities), high severity/ low frequency exposure underwriting and the ‘small insurer’ programs. Charlie Woodman, Willis
Evolution of Board Governance Best Practices
Hotel Accommodations The Charleston Place Hotel Positioned at the very heart of Charleston, within walking distance of the historic centre and all the major attractions, this delightful hotel makes every guest feel part of this great southern city. A gathering point for local society, it blends gentility and old-world charm with a leading-edge spa and innovative cuisine. Renowned as Charleston’s finest hotel, it is a standard bearer of OrientExpress style. Its first class meeting and conference facilities are complemented by ‘The Club’, a private concierge level located on the top two floors. Leisure activities include relaxing by the rooftop pool, dining in the award-winning Charleston Grill and browsing the exclusive boutiques both at the hotel and in the shopping streets nearby. SCCIA has reserved a special conference rate of $259/night plus tax. To reserve your room, please call 1-800-831-3490 by August 17, 2012 or via email at groupres@charlestonplace.com. Please note, the hotel sells out of room every year, so register before the August 17, 2012 deadline to stay at the hotel. Visit www.charlestonplace.com for more information on the hotel.
Our goal is to help you assess the current status of your captive and more importantly, chart a path for continued and even greater success. Tom Brumgardt, Nelson Mullins Barry Couch, Healthsure
The New Normal: What It Means for Collateral Requirements? Carolina Cruickshank, BNY Mellon
Advanced Tax/Dodd Frank Act A basic understanding of insurance taxation is a prerequisite for this seminar. This session will cover the timely and relevant advanced taxation topics affecting the captive insurance industry today. Topics covered will include a review of recent IRS rulings, court cases, letter rulings and other guidance that address various captive insurance taxation matters. The panel will also provide an update on the recently enacted Dodd-Frank Act and how the law affects captives, insight to how companies are handling the law, and what the future might hold. Dan Kusaila, Saslow Lufkin & Buggy Tom Jones, McDermott Will & Emery Sarah Stubbs, Johnson Lambert & Co.
Update on RRGs/NAIC Tom Brumgardt, Nelson Mullins Leslie Jones, SC DOI Julie Robertson, Honigman
Loss Portfolio Transfers/Novation/Commutation Agreements This session will provide an understanding of the three popular methods for transferring risk including differences in the legal and accounting implications. We will also consider the impact such transactions have on premium taxes. This session with be interesting for both service providers and owners as it will touch upon developing new business possibilities for captives and RRG’s by moving historically commercially insured lines of business into ART Programs. Josh Bartlow, Johnson Lambert & Co.
Pure Captive/SPFC/RRG/Service Provider Roundtables These interactive roundtable sessions will be grouped accordingly, with a moderator to facilitate discussion among the members present. These have proven to be a useful tool for those in these different segments to network and discuss issues vital to the specific captive. 10
SCCIA 13th Annual Executive Educational Conference South Carolina‌Made for Captives
Please complete or attach business card.
Name Mr. / Mrs. / Ms. Organization Title Address City/State/Zip Phone
E-mail*
Name as it should appear on nametag Spouse/Guest Registration Please note emergency contact name/number Registration fee includes conference materials and all events. Pre-conference event, Captive Academy, requires an additional registration as noted below. Please complete this form by circling your registration type and completing the information below. All registrations must be submitted to SCCIA, PO Box 1763, Columbia, SC 29202 or via fax 803.252.0589.
Payment Method: Check Enclosed
Super Early Bird Early Bird Regular Prior Prior to to March April 20 31 April April 20 1 June June 15 30 June July 1 - -Sept. Sept. 12 14 VISA MasterCard American Express 16 Discover
Captive Academy Member
$250 $225
$295 $225
Captive Academy Nonmember
$350 $275
$395 $275
Card Number
Name of cardholder
Exp
$395 $250 $495 $300
Onsite
CVV
$495 $250 $595 $500
Full Conference Rates
Signature Member
$450
$595
$795
$895
Member Additional $395 received on or before $425August 13, 2011, will receive $495 Cancellation Policy: Written cancellations a refund of 50%. Sorry, but$595 due to hotel staffing requirements, all cancellations received after August 13, 2011, are not eligible for a refund; however substitutions are Non-Member $750 $795 $995 $1195 permitted. Those registering after August 13, 2011 are not eligible for a refund. Government Rate
$225
$225
$225
$225
Spouse / Guest
$225
$225
$225
$225
Payment Method: Check Enclosed
VISA
MasterCard
American Express
Card Number
Exp
Discover
CVV
Name of cardholder Signature Cancellation Policy: Written cancellations received on or before August 17, 2012, will receive a refund of 50%. Sorry, but due to hotel staffing requirements, all cancellations received after August 17, 2012, are not eligible for a refund; however substitutions are permitted. Those registering after August 17, 2012 are not eligible for a refund. 11