Insurers Worldwide Captivated by Vermont
BURLINGTON--Ah, Vermont -- land of maple syrup, Ben & Jerry's and ... captive insurance? Well, yeah. Vermont is the nationwide leader in the highly specialized captive-insurance industry; the Green Mountain state is the third-largest captive-insurance domicile in the world, behind Bermuda and the Cayman Islands.
Last week, August 9-11, the Vermont Captive Insurance Association held its annual conference at the Sheraton Hotel and Conference Center in South Burlington, an event billed by VCIA as the largest of its kind. This year it drew 1230 attendees and vendors, who swarmed around the Sheraton Wednesday morning talking on cellphones, checking their Blackberries and eagerly networking before seminars on topics such as "Financial Ratings and Collateral" and "Captive Formation Case Studies."
Not your idea of a good time? It is to plenty of Vermonters, including many in the legislature. Vermont was one of the first states to legalize the industry, in 1981; it's now legal in 25 states. VCIA President Molly Lambert points out that Vermont businesspeople and politicians of all stripes have been "unanimously supportive" ever since.
According to the VCIA, the state is home to 717 of the world's 4000 registered captives. In 2005, these companies brought Vermont roughly $21.5 million in tax benefits. They're responsible for 1400 full- and part-time jobs, many of them in the high-paying financial sector. "And," added Lambert, "they don't pollute ... This is such a perfect match."
For the uninitiated: Captive insurance refers to private insurance companies established by entities such as corporations, municipalities or utilities. These "captive" companies -- owned by the parent institution or a consortium of parent institutions -- enable their creators to save money by better managing their risk. Corporations sometimes form captives to insure things that other insurers would charge through the roof to cover, or simply refuse to insure. Companies such as Wal-Mart and the New Jersey Sports and Exposition Authority have captives based in Vermont.
Beyond that, the industry is difficult to describe. Terri Wilfong, an insurance manager for a pharmaceutical company in Delaware, tried to enumerate the nuances of the business over the buffet lunch. She pointed out that companies might want to form a captive to oversee their liability insurance, or to do worker's comp, or medical malpractice.
But after a few minutes, her litany of percentages and yields was enough to make an outsider's eyes glaze over. A businessman from New Jersey interjected to confide that it is, in fact, a difficult business to follow. "There are some people who've been involved in it for years who don't understand all of it," he said.
Also hard to understand was the choice of mountaineer and filmmaker David Breashears as VCIA's keynote speaker. Best known for several ascents up Mt. Everest, Breashears fit the theme of the conference -- "Reaching New Heights in Risk Management" -- but he didn't have much to say about insurance. He mentioned it only a couple times, as the punch line for his hair-raising anecdotes.
Not all the participants attended Breashears' address. On a bus ride back to their hotel in downtown Burlington shortly after the speech, three Syracuse businessmen admitted they'd been chatting up vendors the entire time. They came to the conference specifically to set up a captive company, and made an appointment with a local lawyer to get the process rolling.
Showing off an aqua-blue bag he got from a vendor, which read, "Bermuda: the risk capital of the world," one of the men noted, "Bermuda used to be the best." But he said that offshore captives have fallen in his esteem. Vermont is attractive, he said, because the state does a good job of regulating the industry; in fact, there are 26 people in the Department of Banking and Insurance who license and regulate captives. In Vermont, he said, "they don't do anything loose.