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The Delaware Captive Insurance Association (DCIA) held its Spring Forum May 7-8 at the Chase Center in Wilmington, Delaware. Captive service providers, captive owners and Delaware’s captive regulators gathered in attendance for sessions covering a range of relevant topics.
The conference carried regulation as its unofficial theme, perhaps not unexpectedly, with each session analyzing a different aspect or angle. The impact of politics on captive regulatory decisions, the legal hurdles of insuring the key players of the cannabis industry, and the various state-specific treatments of self-procurement tax were a few of the topics covered.
Throughout the sessions, the role of the actuary was often discussed, sometimes front-and-center. The session “Why the Actuary REALLY Matters,” by Rob Walling, Pinnacle Principal and Consulting Actuary, and Brian Johnson, Risk International Actuarial Consulting CEO and Consulting Actuary, explored the value of an actuary’s opinion in the captive formation process. The actuary determines captive premiums in his or her feasibility study but can also offer perspective on the captive’s coverages and coverage limits offered, its reinsurance and pooling decisions, and initial capitalization, particularly from the unique perspective of assessing whether risk shifting and risk distribution are present in the proposed captive structure.
As captives, particularly those making the 831(b) election, continue to be under heavy regulatory scrutiny, actuaries will be called upon to share their expertise. As recent tax court rulings against captives making the 831(b) election have established as precedent, the questions of whether premiums are actuarially determined and whether risk distribution is present are of vital importance in assessing if the captive participates in bona fide insurance transactions.
Steve Kinion, Delaware’s director of the Bureau of Captive and Financial Insurance Products, led the “Department of Insurance Regulator Update,” the closing session of the conference. His update paid significant focus to a regulator’s role throughout the different stages of establishment and operation of a captive. A key question posed was whether it is the responsibility of the regulator to ensure the premiums charged by a captive insurer are not excessive (or is the obligation limited to assessing the insurer’s ability to remain solvent). While Kinion did not officially opine on the matter, a discussion among actuaries in attendance pointed to a more clear answer: in Delaware, an actuary engaged by the state to review the feasibility study of a captive will evaluate the reasonableness of premiums.
The DCIA Spring Forum highlighted the importance of the actuary’s role in the captive industry. The actuary can do more than price premiums and estimate reserves; he or she can act as a risk management adviser to captive service providers and owners and will be called upon to inform regulatory decisions.
Michael Paradiso is an Associate Actuary with Pinnacle Actuarial Resources, Inc. in the Chicago, Illinois office. He has been working in the property/casualty insurance industry since 2016. He has experience in assignments involving loss reserving, loss cost projections, and captive funding and feasibility studies. Michael is an Associate of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.
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