We've all gone soft!
The easing of pricing in the property/casualty market has meant a dip in the number of captive formations in the first six months of this year, according to Vermont captive insurance officials.
"There's no question that the market's a little bit soft right now," said Len Crouse, deputy commissioner of the Captive Insurance Division of the Vermont Department of Banking, Insurance, Securities & Health Care Administration. "The softening is basically in all lines--property, GL, D&O, E&O, workers' comp--it covers the whole gamut right now."
When the market softens, the traditional insurance industry lowers its rates and insurance is more accessible for corporations, obviating the need to look to alternative markets for coverage.
In addition to the 14 licenses issued in the first six months ending June 30, Crouse said he expected four more pending licenses, all for pure captives, to be approved by early August.
Included in the 14 new licenses are four risk retention groups, one branch captive and nine pure captives. Corporations setting up captive insurance structures in Vermont in the first six months include a large biopharmaceutical company looking to reinsure its long-term disability risks. Vornado, a major real-estate investment trust, set up a pure captive.
U.S. Rail Insurance Co., a small risk retention group, was formed specifically for short-line railroads with less than 250 miles of track and under $20 million in revenue. It is the first RRG of its kind in Vermont, Crouse said.
Aon and Willis each had three new captives. Marsh had two. The remaining six went to Beecher Carlson, Arthur J. Gallagher, SRS, Wilmington Trust, AIG and USA Risk Group.
The state licensed 37 new captives in 2006 and 37 new captives in 2005. Crouse said the state was "on track" to match that number again this year as the second half, particularly the fourth quarter, is typically stronger than the first half.
Crouse admitted he can't be sure. "It used to be that market cycles lasted seven or eight years," he said. "But the last hard market was quick, it lasted about a year. I've never seen such fluctuations in the market. So, how long will this softening last? Who knows."
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September 1, 2007
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