First Shot Fired In Captive War?
With the insurance market growing ever tighter, it was inevitable that risk manager interest in captives would soar. With the success of Vermont as a domestic captive haven, it was also inevitable that other U.S. domiciles would look to get into the act.
Competition is healthy, in that brokers and risk managers benefit from having as many options as possible. But any hope that this competition would be friendly was shattered by the news that South Carolina will hold a "Redomestication Seminar" next month to spur some entities to relocate.
"The gloves are off. It's not a gentlemanly game. It's, 'we want our share and we're going to do anything to get it,'" was the keen observation of Carl Modecki, president of the Captive Insurance Companies Association. Vermont officials openly fumed about the announcement.
But Clayton Ingram, director of business development for South Carolina's insurance department, said that "since we're the new players in the game and we weren't at the table before, people who located elsewhere may want to reconsider their move."
As long as the competition is clean, this is simply the free market at work. This type of stuff goes on all the time.
After all, the bulk of Wall Street's back office did not move across the Hudson River to Jersey City because they preferred the view. It was because of cheaper taxes and better rents, as well as other cost and logistical advantages. The same ground rules should apply to what could become a brutal battle among captive domiciles.
Our only concern is that the competition could degenerate into a race to the bottom. We would be troubled if captives or risk retention groups without sufficient capital or expertise behind them somehow find refuge in the domicile with the lowest standards. That would undermine the reputation of the alternative market in general, to everyone's detriment.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 27 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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