The
Captive Insurance J O U R N A L
2nd Quarter 2011
I N
T H I S
I S S U E
Chairman’s Report
Page 2 President’s Message
Page 3 SSAE 16 Neil Jones - Guest Columnist
Ann West Kane (USA), Inc. 2011 SCCIA Chairman of the Board
Page 4-5 12th Annual Conference
Page 6 New Members Licensed Captives
Page 7 SCCIA Governmental Affairs Update
Page 8 Membership Application
Your SCCIA Board of Directors has met frequently this year due to the many things happening within the SCCIA. We met in March and June at our regularly scheduled time, in July via teleconference and will have an additional meeting in August. Your Board has been working diligently to see the success of SCCIA continue, through the annual conference, legislative issues, communications and the day to day operations. The Annual Conference Committee has lined-up some great speakers and a wonderful time to network with your peers. Register today. There are many sponsorships that are still available. This is a conference you are not going to want to miss. Legislatively, even though the Legislature is not currently in session, your Governmental Affairs Committee and the Board are continuing their work on incorporated cell legislation. This is also the time we set up and conduct more meetings with state leadership and work to provide SC the necessary laws to make it a greater domicile. Communications are ever important during this time and keeping you informed
is a priority. Emails, newsletters, websites are all mediums for communication. The Marketing Committee is working to set up a LinkedIn account for this purpose. The Membership Committee is working on a survey to help facilitate the best means of getting information to you. Be on the lookout for this survey to come shortly. The SCCIA Board has approved the membership year to run on a calendar year. This can help you plan your budgets and provide more stability within the membership department. If your membership is scheduled to renew between July and December, you will receive an invoice with an option to either pay through December 31, 2011 at a prorated amount or through December 31, 2012 at that prorated amount plus one year. Lastly, I want to thank each of you for your membership and support of the SCCIA. The SCCIA is the voice of membership in the South Carolina domicile and your commitment and feedback is as always, vital to our collective success
Ann
The Captive Insurance Journal Second Quarter, 2011
President’s
Message business through event sponsorships and exhibits. Some great high profile options are still available and what a wonderful way to promote your services among leading captive professionals from around the world. Finally, don’t forget about the ever popular Annual Golf Outing where all skill levels enjoy a morning of fun on one of Charleston’s scenic courses.
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 2011 DIRECTORS & OFFICERS Chairman of the Board Ann West HSBC Insurance Management President Robert L. Johnson Marsh Management Services, Inc. Treasurer/Corporate Secretary Thomas A. Brumgardt Nelson Mullins Riley & Scarborough, LLP Directors Robert Schmid Energy Insurance Services, Inc. John P. Seibels, Jr. Seibels Law Firm, PA Andrea Bartlett Bartlett Actuarial Group, Ltd. Randy Collins Koppers Assurance, Inc. Executive Director Laura Stuckey © Copyright 2011 SC Captive Insurance Association
As I write this address I can not believe 2011 is half over already. Captive owners and service providers have been busy thus far with board meetings, regulatory filings, program renewals and normal daily business challenges. At the SCCIA, your Board and committee volunteers have been busy putting the final touches on the upcoming 12th Annual Executive Educational Conference, holding meetings with Director David Black to discuss growth strategies for the captive industry, meeting with numerous legislative representatives to educate them on the value of the captive program in South Carolina and we have finalized the 2010 Economic Impact Report. With the annual conference due to kick off in less than two months, I invite all to visit the Association’s Website, www.sccia.org, for the most up to date details on educational sessions, the Captive Academy, speakers of interest, networking opportunities and social functions. Our Education Committee has worked incredibly hard to prepare a program that offers something for everyone. My sincere appreciation to Committee Chairman, Mike Coulter, and each member of the Education Committee for their hard work and solid results. I would also encourage conference attendees to consider promoting your 2
At last year’s conference, the Association reported the results of the first ever Economic Impact Study valued as of December 31, 2009. Roughly $689M was the financial impact to South Carolina per that report and I know how surprised many of us were at such a large number. As of December 31, 2010, that number had grown to $913M, which is an amazing result. However, there are two sides to the economic impact story coming out of 2010 so join us at the conference for a detailed look back. With continued dedication and hard work, could it be in the cards that the captive industry in South Carolina surpasses the $1B mark by the end of 2011 in economic impact? I certainly believe it can and I have every faith in the membership of the SCCIA to achieve such an incredible milestone. Much has been accomplished to date and the first half of 2011 is “in the books” so to speak. September 12 – 14 is just around the corner and that too will be upon us before we know it. Start planning and packing for the trip to Charleston. We look forward to seeing everyone at Charleston Place in a few short weeks.
Best regards,
Robert L. Johnson Robert L. Johnson, President South Carolina Captive Insurance Association Ph. 843-577-1030
The Captive Insurance Journal Second Quarter, 2011
SSAE16: I m p a c t s o n t h e Captive Insurance Industry Whether you’re a captive insurance owner, manager, or affiliated with an organization servicing captive insurance companies (such as a claims administrator), if Neil Jones you’ve spent any CPA, CISA, CITP length of time in the captive insurance or public accounting industry, you’ve probably heard the term SAS70. Statements on Auditing Standards No. 70, Service Organizations (commonly referred to as “SAS70”) reports have long been used by service organizations for various purposes. Maybe it’s used to make clients feel warm and fuzzy about the integrity of the service being provided to them, to satisfy a regulatory or contractual requirement, or as a prospecting tool. Maybe it’s used to keep hundreds of auditors like me from showing up at the doorstep of every service organization out there to perform detailed transaction testing. I look at it as an efficiency play because it centralizes significant, if not all, components of an organization’s internal control structure into one uniform, succinct, distributable document. Whatever the case, we all seek a strong internal control environment for captive insurance companies and the organizations servicing those captives, especially in light of the integral roles that these service organizations play in the operations of virtually all captive insurance companies. With that in mind, it seemed an appropriate time to provide you with an overview of some recent internal control attestation changes and the impact that those changes may have on you. A bit of background for you to consider regarding these changes – SAS70 is an audit assertion and as such, if the standard is followed appropriately, is only applicable
in those cases in which the controls of a service organization have a financial statement impact to their respective user organizations. Over time, service organizations began using SAS70 for tests of controls for which it was never intended, nor applicable, such as privacy and security, and as a result, SAS70 morphed into an internal control auditing standard catch-all. Effective for reporting periods on or after June 15, 2011, the American Institute of Certified Public Accountants (“AICPA”), undoubtedly concerned over this freestyle transition and looking to provide clarifying guidance, replaced SAS70 with a three-pronged internal control reporting structure coined Service Organization Controls (“SOC”) as follows: SOC-1, which includes internal controls over financial reporting, and SOC-2 and SOC-3, which include controls over security, privacy, and trust services. While SOC-2 and SOC-3 could no doubt have implications on the captive insurance industry, for clarity’s sake we’ll restrict this discussion to SOC-1, which is now governed by Statement on Standards for Attestation Engagements No. 16 (“SSAE16”), consisting of specific procedures identified by management and performed by the auditor. So, whether you’re part of an organization providing services to a captive or the owner or manager of a captive, how is this new standard going to impact you? Let’s start with those of you servicing captives – third party administrators and the like. While the overall objectives of SSAE16 and SAS70 are similar, the methods used to achieve those objectives are significantly different in some cases. For starters, under SAS70, it was permissible for management to essentially choose the basis of the audit procedures, meaning management could select processes to include or exclude from auditing procedures, whereas SSAE16 requires management to use a risk-based 3
approach to determine controls to include or exclude from attestation procedures and the auditor must then consider the sufficiency of that determination. Further, under SAS70, management was not required to make any assertions regarding the sufficiency of audit evidence provided to auditors, but SSAE16 requires management to make such assertions in writing. Finally, under SAS70, although virtually every SAS70 report issued includes a non-disclosure statement or is branded with “CONFIDENTIAL”, the user of the resulting report was essentially the public. SSAE16 restricts report users to user auditors and the management of the service and user organizations. Roughly translated, an SSAE16 report is not designed to be used as a marketing tool. Now, what if you’re a captive owner or manager? Because of the risk-based approach to determining controls that are included or excluded from attestation procedures required by SSAE16, you’re seeing a more well-rounded picture of those organizations servicing your captive rather than, in some instances, what those service organizations want you to see. Also, those same service organizations are putting pen to paper when it comes to backing up their assertions related to audit evidence. In conclusion, the changes discussed above not only safeguard the spirit of SAS70, but serve to increase the integrity of the internal control reporting process, which inherently leads to an increase in the value of such reports to your captive insurance company or organization servicing captive insurance companies. Neil Jones, CPA, CISA, CITP is an audit senior manager with Bauknight Pietras & Stormer, P.A., accountants and consultants to captive insurance companies worldwide. He can be reached at (803) 771-8943 or njones@bpscpas.com.
The Captive Insurance Journal Second Quarter, 2011
12th Annual Executive
Educational
September 12-14, 2011 • Charleston Place Hotel
South Carolina: The
Next Generation
This year we have an outstanding line up of speakers and educational sessions, an array of networking events, all within the beautiful Charleston Place Hotel located in downtown Charleston, SC. To register online, sign up for a sponsorship or learn more about this year’s conference, visit our website at www.sccia.org.
Featured Speakers: Phil Lader, Esq. – Nelson Mullins Riley & Scarborough Brad Van Liew – Team Lazarus, www.oceanracing.org
Workshops Include: Captive Academy (pre-conference session)
Visit ccia.org www.s the to view nce confere d tion an informa . r online registe
• • • • • • • • • • • •
Captives and the Federal Government: The TOTAL Cost of Risk Collateral Issues for Captives The Evolution of Captive Taxation: Where are we Now? FASB Financial Instruments Package, IFRS and Solvency II Healthcare Reform – How the Market is Changing SCCIA Legislative Update The New Look of Post-Recession Captives Outlook on the Current State of the Economy and Captive Investment Strategies in Today’s Market Risk Appetite – Defining the Quantifiable Parameters of ERM RRG’s: Fed, NAIC and GAO update South Carolina Regulatory Panel Roundtable Discussions for RRGs, Pure Captives, Service Providers and SPFCs
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The Captive Insurance Journal Second Quarter, 2011
Conference 12th Annual Executive Educational Conference Exhibitors Include: • • • • • • • • • • •
Bauknight Pietras SC DOI Kane (USA), Inc. USA Risk Johnson Lambert GPW & Associates Saslow, Lufkin & Buggy, LLP Imperial PFS AON Rives & Associates Prime Captive Services
Special thanks to our conference sponsors: • Bauknight Pietras and Stormer • Marsh • Zurich
Special thanks to our golf sponsors: • • • • • • • • • • • •
Johnson Lambert GPW & Associates Lincoln Financial Group Red Re, Inc. Island RE, Inc. Emergency Medicine Risk Retention Group Avanti Insurance Company IU Health Risk Retention Group, Inc. CSX Insurance Company Physicians Proactive Protection, Inc., RRG Rock Solid Insurance Company Tryon Assurance Company, Ltd.
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The Captive Insurance Journal Second Quarter, 2011
We l c o m e
New Members
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
Associated Physicians Captive Captive Insurance Company
HRI Insurance Co. Captive Insurance Company
CS-Risk Insurance, Inc. Captive Insurance Company
Massac Insurance Company Captive Insurance Company
Double Mountain Risk, Inc. Captive Insurance Company
Prime Captive Services Industry Service Provider
Foodservice Risk Management, Inc. Company Insurance Company
LICENSED CAPTIVES THROUGH JUNE 30, 2011 Massac I Pure Kane (USA), Inc.
LGIS Insurance Company Pure Marsh
Massac II Pure Kane (USA), Inc.
ELCO Insurance Company Ltd Branch Wilmington Trust
Massac III Pure Kane (USA), Inc.
SC CAPTIVES LICENSED IN 2010 Associated Physicians Captive, Inc SPC Strategic Risk Solutions
HRI Insurance, Inc. Pure MIJS Captive Management
Columbia Risk, LLC Pure USA Risk
National Casualty & Assurance, Inc Pure Marsh
CS-Risk Insurance, Inc. Pure MIJS Captive Management
RTS Insurance, Inc. Pure MIJS Captive Management
Diversified Global Resources, LLC SPC PrimeFortress
US Consolidated Group, Inc. SPC Willis Captive Management
Double Mountain Risk, Inc. Pure MIJS Captive Management
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The Captive Insurance Journal Second Quarter, 2011
News from the Dome
SCCIA Governmental Affairs Update On January 25, 2011 H3414 was introduced in the South Carolina House of Representatives. This Bill was proposed by the industry to clarify the definition of “sponsored captives” and to facilitate the “redomestication” of sponsored captives formed outside of the United States to South Carolina, thereby allowing our industry better access to quality captive insurance programs from well-respected off-shore domiciles such as the Cayman Islands and Bermuda. Further, H3414 would give captives utilizing “protected cells” the option to form those cells as separate incorporated entities. This change will encourage the formation and use of protected cells by providing better liability protections for each protected cell and will position South Carolina to better compete with other domiciles, including the District of Columbia and Vermont, which have already enacted similar legislation. In addition, this change will assist South Carolina captives for tax accounting purposes if the Internal Revenue Service requires protected cells to be separately incorporated in the future.
After receiving a favorable recommendation from the Committee on Labor, Commerce and Industry and unanimous support by members of the House of Representatives, H3414 was read for a third time on March 11, 2011 and sent to the Senate for consideration, where it was referred to the Committee on Banking and Insurance on March 15. H3414 did not make it out of committee during the session; however, it will be taken up again by the Committee on Banking and Insurance when the Senate reconvenes January 2012. The SCCIA Government Affairs Committee sees this development as an opportunity to meet with and seek additional input and feedback from both the staff of the South Carolina Department of Insurance and the members of the Committee on Banking and Insurance, to ensure that any and all questions pertaining to H3414 are adequately addressed. I am confident that through the continued efforts of the Government Affairs Committee and the SCCIA leadership, H3414 will receive
approval from the Senate next year and that the passage of this important piece of legislation will help our domicile retain its position as one of the premier the domiciles of choice. The committee has also reviewed recommendations for expenditures from the Captive Insurance Political Action Committee (“CIPAC”). These recommendations to the Board of Directors included contributions to Governor Haley and key House members who are, and were, particularly interested in and supportive of our captive program. Through support of key members of the General Assembly, our industry will have greater visibility. This also expresses our appreciation for the vote of confidence and support we've received from our elected leaders. We encourage your input with respect to appropriate contributions for any government official you feel is uniquely positioned and especially supportive of our program.
Michael Molony, Esq. SCCIA Governmental Affairs Chairman
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Membership Application
sccia.org Mail Completed Application and Payment to: South Carolina Captive Insurance Association, Inc (SCCIA) P.O. Box 1763, Columbia, South Carolina 29202 Phone toll free: 888.227.8483, Phone (Local) 803.779.6677 Fax: 803.252.0589 Email: lstuckey@sccia.org
Company/ Association______________________________________________________________ Address_________________________________________________________________________ City ________________________________________ State________ Zip ____________________ Telephone (_____) _________________ Fax (_____) _______________________________________ Email________________________________________ Website ____________________________ Full name of primary corporate representative __________________________________________ Job title ___________________________________________________________________________ Primary industry of applicant _________________________________________________________ Additional company email contacts (others who should receive SCCIA material) Name __________________________________ Name ___________________________________ Title __________________________________ Title ____________________________________ Email __________________________________ Email ___________________________________ How did you find us? Please select the best option below. Internet Networking event SCCIA conference SCCIA blast email Referral from colleague South Carolina Department of Insurance
Membership Category (Check one) Captive Insurance Company (Corporate or Association)*-$750 First-time Captive/RRG Owners receive first year of dues waived.
Industry Service Provider - $1,500 Affiliate** - $650 *Also includes captive insurance programs in formation. **Wholly-owned subsidiary of a captive insurance company or industry service provider that is currently a member in SCCIA. Your membership in SCCIA is not tax deductable as a charitable contribution for federal income tax purposes. However, membership dues and related payments made to SCCIA may be deductible as an ordinary and necessary business expense.
Single Parent Captive Program Association Sponsored Captive Program RRG/Purchasing Group Captive Manager Financial Services Legal Services Accounting/Actuarial Services Reinsurance Risk Management Consultant Press/Government Other
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Payment Information Enclosed is my check made payable to SCCIA. Please charge the following: Visa MC Amex Discover Credit card number: ____________________________________ Card in the name of: ____________________________________ Billing address ____________________________________ ____________________________________ City_________________________________ State _____________ Zip ______________ VAL Code ___________________________ (MC, Visa, Discover—last 3 digits on card back; AMEX—4 digits on card front)
Expiration ___________________________ X __________________________________
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The Captive Insurance Journal Second Quarter, 2011
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