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Prisoners who are seen as a refuge as prices continue to rise



Interest in prisoner insurance has increased during the hardening commercial insurance market over the past two years and new formations are growing, although financial uncertainty associated with the COVID-19 pandemic is likely to hold back some potential prisoner owners, say prisoner experts. 19659002] Existing owners are also expanding the use of their prisoners as they face higher insurance rates and tightening capacity in traditional markets.

Most of the largest detention centers reported an increase in formation last year (see chart on page 22), although others, especially those with a significant number of small detainees, saw decreases. Regulatory pressure on microcaptives has intensified over the past 1

8 months (see story on page 22). All of the largest captured managers reported increases in captivity (see diagram on page 25).

Captured executives and other experts expect that the growing interest in alternative risk transfer vehicles will continue until 2021 as the hardening insurance market shows some signs of slowing down.

"Companies that previously had prisoners or explored them are really new to seeing and forming prisoners now, and people who had not explored them are really looking pretty hard at it and striving to form a prisoner because of the tough market" , said Anne Marie Towle, Indianapolis-based Global Prison Solutions Leader for Hylant Inc.

There has been unparalleled interest in prisoners over the past year, said Ellen Charnley, President of Marsh Captive Solutions, a unit of Marsh LLC.

Existing prison owners use more of their prisoners, for example by increasing their retention levels to control their total risk cost, and more companies without prisoners want to form them, she said.

“It's about flexibility. Ultimately, a captive allows a captive owner and an organization to have the flexibility to organize and take control of their total total risk cost, so when markets are difficult, they can use their captive to be flexible with their program structure and to manage that volatility. , ”Mrs. Charnley said.

"There has been a significant increase in captivity due to the hardening market," said Sandy Bigglestone, head of prison insurance in the captive department of Vermont's Department of Economic Regulation in Montpelier.

Vermont, the largest and one of the longest-established U.S. prison domiciles, licensed 38 new prisoners by 2020, compared to 22 new licenses in 2019, and by mid-February had already licensed eight new prisoners this year, she said.

Interest in forming capture cells within segregated cell companies has increased sharply during the tough market as companies rapidly want to expand risk financing tools, say several experts.

Vermont approved about 60 new prison cells by 2020 and took the state's total cells to about 300, Bigglestone said.

"The amount of interest is through the roof and the amount of education is also high," said Patrick Theriault, CEO of Strategic Risk Solutions Inc. in Burlington, Vermont.

Industries such as long-term care and trucking have seen significant capacity reductions and are looking at prisoners when their other coverage options disappear, he said.

"It is a mixture of capacity or lack of it in some places and reduced capacity and increased prices in other places," he said.

Pandemic pressure

But economic pressure related to the pandemic has held back formations of some companies, says Theriault.

"For some companies, cash has become more important than ever," he said. "They may hesitate to commit capital and significant financing in a prisoner at this time. … But many others have progressed. "

Some companies that are exposed to pressure during the pandemic are facing opposing forces," say several experts in captivity.

“On the one hand, all companies in the pandemic keep a close eye on cash flow; on the other hand, you have a hardening insurance market or a hard insurance market within certain coverage lines, which forces companies to take a good look at prisoners, says Matt Atkinson, senior vice president at Artex Risk Solutions, the captured management unit for Arthur J. Gallagher & Co.

Vermont has added more questions about due diligence in connection with internal financing during the pandemic, says Bigglestone.

"If a company hurts, it may not be the best time to finance a prisoner and pay the cost of running it," she says.

The pandemic slowed down the formations for a few months during the first half of 2020, but the pace picked up again in June, says Nancy Gray, regional manager. -Americas at Aon PLC in Burlington, Vermont.

"Ultimately, companies need insurance in place, so it's not like you can delay, and the prisoner became a useful tool in dealing with any new renewals," she said. [19659002] Negotiations

Cap tives are increasingly used as a negotiation tool by their owners during renovations, Bigglestone said.

Companies prepare feasibility studies for a variety of limits that their prisoners can cover and can take higher retentions at lower prices for coverage in the commercial market, she said. When the negotiations are complete, they will present a final business plan to the regulators, she said.

International Paper Co. has used his captivity for many years to cover various risks, including general liability, car liability, property, entrepreneurial risks and employee risks, says David Arick, Deputy Treasurer, Global Risk Management at Memphis, Tennessee-based companies.

“We already take significant deductibles in most of our programs so we avoided some of the obstacles that many people see for the first time because the soft market made it possible for people to have much lower deductibles than would probably be sustainable. in the long run, ”he said.

International Paper had prisoners in Vermont and Tennessee and last year decided to redistribute their Vermont prisoner to their residence, said Arick, who is also head of the Risk & Insurance Management Society Inc.

Although Vermont is the most well-established US housing, Tennessee also has a supportive regulatory structure in place, and ease of travel and administration were the key considerations behind the move, he said.

Rising insurance rates are also urging commercial insurance companies to establish prisoners.

More managing general agents and management of general insurers want to form "companions" to take a hare share of the company they run, says Mrs. Towle from Hylant.

U.S. companies are still more interested in establishing prisoners in domestic domicile, partly because of costs, and especially those in states with well-established captivity laws, but prisoners also establish offshore, she said.

About 50% of American prisoners formed by Davies Captive Management are domiciled with the rest formed at sea, says Nick Frost, Bermuda-based president of the captive manager, which is owned by Davies Group Ltd. "We are housing neutral," he said.

Reinsurance

One of the often mentioned advantages of forming a prisoner is that the vehicles allow policyholders direct access to capacity in the reinsurance market, but prices have also been tightened in that sector, say captive executives. [19659002] "Companies must undergo proper risk technology, they must have purchases from the highest levels of their leadership and they must interact with the reinsurance market and tell their stories," says Atkinson

access to additional capacity in a dense market, says Gray Gray from Aon.

"What the prisoner provides is additional capacity through the reinsurance market, so if you do not get capacity directly, it provides another source," she says. than to go straight. "

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