CICA Special Section

Recounting victories, looking ahead

CICA president reflects

By Michael J. Moody, MBA, ARM

The United States economy is heading into a very challenging time for businesses in general, and specifically for trade associations across the country. Many trade associations are heading into this uncertain period at a low point. However, some associations are entering 2009 in better shape. Such is the case with the Captive Insurance Companies Association (CICA).

CICA President Dennis Harwick notes that 2008 was a watershed year for the association. He points out that CICA, in conjunction with the Vermont Captive Insurance Association, as well as all the industry stakeholders, successfully defended an industry challenge from the Internal Revenue Service (IRS). Harwick notes that “thanks to all the stakeholders,” CICA was able to mount an effective and rational approach to moving forward as an industry in making their point. In fact, according to Harwick, “The zenith of the year was the day that the IRS quietly inserted two items into the Federal Register.” The first item, he says, “was the cancellation notice of the upcoming hearing on the proposed regulation,” and the second item “was the IRS withdrawing their proposed regulation.”

CICA found its voice

It was this coordinated effort that helped CICA refine its role within the captive insurance industry. As Harwick points out, “the CICA board has traditionally been cautious about getting involved with governmental relations.” The obvious reason for this, he says, is that “most insurance issues are handled at the state level” or involve onshore/offshore issues. “But this was different,” he says. “We decided to take a stance on this issue.” And with the active support of the various stakeholders, they prevailed. Harwick points out that all of the stakeholders deserve “a hearty thank you,” but he says, “I want to give a special thanks to the various domicile captive associations.

“Out of this involvement, CICA has been begun to see itself in more of an advocacy role.” And he notes, based on members’ surveys, “We now recognize that one of CICA’s core functions is performing this advocacy role.” Should the need arise again, “We believe we could replicate the effort, via the coalition, to address issues in a timely manner.”

Additional growth in 2008

There were several other long-term strategies that CICA instituted during 2008. One of the major developments was the publication of the first Captive Best Practices Guidelines. “What we realized early on in the captive community,” Harwick says, “is that one size doesn’t fit all.” CICA quickly found that there are many ways to successfully operate captives. And as a result, “there is no one right way or wrong way to utilize a captive insurance company.” Despite this, CICA was successful in providing the guidelines. He points out that the feedback has been good, but, he adds, “It’s still an ongoing work in progress.” And CICA will be looking to its membership “to provide guidance on how to move it forward.”

Significant additions were also made to the CICA fronting survey in 2008. Additional information on employee benefits in captives, reinsurance costs, terms, and conditions, as well as the fronting costs, were incorporated into last year’s survey. Harwick says that a similar expansion is not planned for 2009, but, he notes, “We will have better and better data, rather than new information.” The fronting survey committee, with the able assistance of Munich Re’s Carol Pierce, “was able to take all the data from the survey and put it into a single comprehensive report.” This published report contains recent and relevant information on various topics addressed in the fronting survey.

Weathering the storm

The theme of this year’s CICA International Conference is “Weathering the Storm—Captive Contributions.” Harwick says that each conference speaker was asked to address how captives and RRGs can best weather the storms of this economy and other industry challenges. Certainly conference keynote speaker Robert L. Crandall, former chairman and CEO of American Airlines, is well-versed on this topic. His leadership through tough times changed the entire aviation industry.

A highlight of the conference is the 2009 Distinguished Service Award and the 2009 Outstanding Captive Award. Harwick also reports that the conference will feature a special tribute to Fred Reiss, the father of the captive movement.

Looking down the road over the next 12 to 18 months, Harwick says most experts agree that “the P&C market will begin to harden.” Many experts are also warning of the hardening market which may last as long as five years. And Harwick says, “This may result in some pain in the short run, but in the long run, this is why people move to captives.” The wild swings just keep coming back in the insurance industry, and these are the things that will make people turn to captives “either out of necessity or by choice.”

Based on past performance, CICA will be on hand to help prospective owners as well as existing captives cope with the vagaries of the insurance market in the best way possible via a captive insurance company. The CICA International Conference provides the best opportunity for interested parties to get current and relevant information on the captive movement. The conference provides some of the industry’s best experts speaking at the sessions, while ample time is provided for discussion with service providers, domicile regulators, and other captive owners.