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By ERIN GAZICA, a freelance writer from Pottstown, Pa.

Last year turned out to be Vermont's best since the boom of new captive insurance company formations following Sept. 11 and the hard market. One captive management representative thinks that might be signaling the economy could be on the road to recovery.

Kenneson said that, lately, he has been receiving more interest in forming captives from the construction and financial industries, both of which were among the hardest hit by the economic downturn.

"You speculate on why (these industries are forming captives) now, but I would say that it's probably an indication that there are some pockets in the United States that think things are going to start to turn around," he said.

CAPTIVES ALWAYS CONSIDERED

Other industry insiders point out that captives are formed during all economic conditions, during hard or soft markets.

Last year, KeyBank moved the Bermuda captive it's had since 1992 to Vermont. Ronald Swiner, manager of corporate insurance and risk management at KeyCorp, said the move was simply a reflection of the company's sizable presence in Vermont.

"It really had nothing to do with economic conditions," Swiner said.

Kenneson qualifies last year's establishment of 39 new captives in Vermont as "outstanding." Not to mention that captive growth is being seen in all domiciles, as companies get more creative with their insurance in order to save money.

"There's captive growth everywhere," Kenneson said. "South Carolina, for instance, formed 16 new captives last year, and that's really good with the economy in the state it is. People are trying to be creative and look at types of insurance that they wouldn't always think about."

Dan Towle, director of financial services in Vermont's Department of Economic, Housing and Community Development, said there is no doubt that interest in forming captives spikes during a hard market. But companies that form captives during a soft market are focused on long-term risk management solutions, which is essential to a successful captive.

"When companies aren't doing as well and the economy isn't doing as well, companies are looking for ways to control costs and save money," Towle said. "A captive can be that mechanism."

NEW CAPTIVE BREAKDOWN

Historically, Vermont has averaged 25 to 30 new captives a year, Towle said. The domicile's best year was 2003 with 77 new captives, while it hit a low point in 2008 with only 16 new captives.

The year 2009 ranks sixth in Vermont's 29-year history. So, hard or soft market, 39 is a good number, Towle said.

The new captives in 2009 include 28 pure captives, five risk retention groups, four special purpose financial captives, one sponsored captive and one industrial insured captive. The companies include Comcast, Morgan Stanley, Swiss Re, Turner Construction and Peabody Energy. Six of the 39 new captives were in the healthcare industry for professional medical liability. Vermont's new total number of captives is 878.

"We've always had a diverse group of captives, but I think the fact that we're seeing more of the financial companies and the construction companies forming captives again, that bodes well for their belief that the economy is turning," said Towle.

According to Towle, 2010 is already looking like a strong year for Vermont.

"There's a lot of years where were don't license more than a couple in the first quarter," he said. "There's a lot of years where we license half of our business in the fourth quarter. The fact that we've already licensed one captive and had three prospective captive meetings the first week in January says a lot about what the first quarter might look like. Right now things are looking solid."

January 11, 2010

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