Captive stirrings at CICA conference - Up Front

Gordon Rowell's unexpected resignation from the head of insurance supervision at the Cayman Island Monetary Authority registered barely a ripple as 10-year veteran Mary Lou Gallegos took the helm on an interim basis.

Gallegos told Risk & Insurance at the annual meeting of the Captive Insurance Companies Association in Orlando, Fla., last month that the status quo reigns supreme at the CIMA. "I'm fortunate to have a great staff backing me up," she said.

No reason was given for Rowell's sudden exit. Rowell's departure leaves an opening at the Authority. Gallegos, deputy head of insurance supervision, would not confirm if she is next in line. Rowell's resignation was effective March 21, 2003.

The conference focused on captive education, corporate governance, Sarbanes-Oxley, and the implementation of captives beyond workers' compensation and general liability. More than 350 attendees met for an early-morning meeting to discuss the association's growth over the last year. In 2002, the association had 218 members. Sessions revolved around the notion of attracting new captive business. Robert Stocker, member of Dickinson Wright in Lansing, Mich., said there were opportunities for captives. "ERISA rules govern almost all employee benefit-related risks that an employer traditionally considers providing to its employees," says Stocker. "However, the Department of Labor has stepped in and created a format where the employer can act as a reinsurer ... to insure employee benefits."

Multiple Employer Welfare Arrangements are plans which are "established or maintained for the purpose of offering or providing any benefit to the employees of two or more employers ... or to their beneficiaries..." It's a pooling arrangement for employee benefits, says Stocker, and they fit very well into a captive scenario.

Stocker also noted the insolvency case of the Reliance Insurance Co., a situation that may affect insureds in the future. "Reliance as you know, is in liquidation," he said. "The bankruptcy is being overseen by the Pennsylvania Insurance Commission. Even though there is 100 percent reinsurance, and we now have claims that are into the excess, we're going through thatreinsurer and asking them to pay the claims."

The issue has become whether or not the drop-down clause in the reinsurance policy allows the reinsurer to bypass Reliance," Stocker also said. "Even with a captive behind it, if it's a reinsurance arrangement, what you have to pay attention to is what happens if the front carrier goes bankrupt? Will the insurer be able to get the money that's available in the reinsurance company to pay the claim? There are rules on this that if there is not an insolvency clause in the treaty or in the certificate of insurance coverage, then state law doesn't prevail. Federal law prevails and therefore you're able to step in and get that money to be paid direct to the insured."

Sarbanes-Oxley figured prominently at the conference. Corporate governance has come to the captive arena. So says Jay Kelly Wright, partner at Arnold & Porter in Washington, D.C. In Wright's estimation, Sarbanes-Oxley was enacted quickly. "In the beginning we heard some different voices. Some were saying we have to enact new laws and make sure nothing like Enron happens again. Then a few other people said we need to get all the facts. In Washington, being opposed to legislation was equivalent to saying Saddam Hussein is a good guy. The opposition suddenly caved in, and Sarbanes-Oxley passed both Houses of Congress by huge margins.

The effects of Sarbanes-Oxley on the entire organization includes records policies, protection of whistleblowers, prohibitions that apply to everyone in an organization, and accountability to higher authorities when policies and procedures are not followed. To protect the organization, Wright suggests preparing policies and procedures before issues arise, publicize the policies, follow them, get counsel involved, and above all, tell the truth.

COPYRIGHT 2003 Axon Group
COPYRIGHT 2003 Gale Group