Since Tennessee began modernising its captive insurance law ten years ago, the domicile has seen steady growth, rising to ninth among the world’s largest domiciles as ranked by Business Insurance magazine in 2020. Jonathan Habart, newly appointed director of the Tennessee Department of Commerce and Insurance’s captive insurance section, aims to add to the 151 active captives and 338 protected cell companies that write annual premiums of more than $1.72bn.
Michael Bradford asked him about his new role, the state’s popularity as a domicile and whether it will continue to grow in an insurance market that is beginning to show some signs of softening.
What is driving Tennessee’s growth as a domicile?
Since Tennessee’s captive insurance statute was modernised in 2011, the state has seen a surge in interest. I believe this is due to a variety of factors, including our business-friendly environment, low-cost structure, a continuous effort to update and modernise our captive statute, as well as a central geographic location.
Tennessee boasts a deep bench of captive industry service providers and thought leaders, which provides a strong framework for a captive to be successful. We believe it is this expertise and focus on customer service that sets Tennessee apart from other states.
Is it fair to say Tennessee is aggressive about attracting captives to the state?
Tennessee has a great relationship with other domiciles and encourages their efforts to grow the captive industry. Having said that, we are enthusiastic about attracting captives to our state. We continue to invest in people, processes and technology in order to maintain our momentum as a first-choice domicile. One example is the addition of a dedicated director of business development in 2020.
Additionally, our team has expanded to ensure we have ample capacity to properly regulate and support the captives we have operating in our state. We are committed to a broad conference circuit and are investing in technology to further enhance our annual reporting and application process.
How did you become involved in the captive market?
I began working with the department in 2015 as a staff examiner of traditional insurance companies. I got to know the captive insurance team and liked their balance of customer service and reasonable regulation. I had worked in the hospitality industry and I really appreciated that the captives team makes it a priority to develop relationships with customers to find the right solutions.
When the opportunity came to join the captive insurance section, I was eager to join. I served as an analyst and examiner before being promoted to assistant director. I served as interim director for several months and am excited to lead the captive insurance section.
Modernisations to the state’s captive statute included authorising parametric insurance and reducing the capital needed by protected cell captives from $250,000 to $100,000. Why were these changes needed?
The addition of parametric insurance aligns well with what the captive industry does best – provide unique coverage options to each owner’s particular risks. Protected cell companies often have a core that facilitates the cells. When that core bears no risk itself, it is not necessary for it to carry a larger capital requirement; the capital should be where the risk is – in the cells.
Are market conditions right to encourage formations to continue in Tennessee?
The insurance market has been hardening for the last couple of years and hit a peak earlier this year when some indications began to show things potentially levelling off. However, interest in captive insurance as a sophisticated risk management strategy remains strong and we fully expect captive growth to continue at a great pace for many years to come. What we typically see is balanced growth both in new formations, heavily driven by protected cells, as well as organic growth within active captives in our state.
Are you seeing formation of a particular type of captive more than others?
Compared to previous years, most of Tennessee’s formations in 2021 have been unique insurance companies. We are seeing a diverse set of captives that have really taken time to look at their parent companies’ risks and build a captive insurance programme that fits perfectly with their risk mitigation strategy.
Why? One of the main reasons is access to data. Companies, more than ever, have a variety of tools that track large amounts of data. They are able to take that information and distil it to provide insight and highlight trends. This allows risk managers and captive professionals the ability to really understand how a particular company’s risks are best mitigated.
Why would a risk manager choose Tennessee as a domicile rather than, say, Bermuda or Hawaii?
We hope that Tennessee is a great fit for all captives that look to place their business in our state, but we recognise that we may not be the perfect fit for everybody. The decision to come to Tennessee boils down to what is best for the parent company’s overall risk management strategy. Tennessee’s captive environment is a mature one that boasts a deep bench of service providers, a modern captive statute, incredibly qualified regulators, central geographic location and a business-friendly environment. This public/private partnership is unique and not easy to develop. But once established, as we have in Tennessee, the captive is going to have all the resources necessary to create an environment for success.
What does of the future of the captive market look like?
I believe the future of captive insurance is very bright. Although the market will soften at some point in the future, the benefits of a captive as a sophisticated component of a company’s overall risk management philosophy will continue to grow as more and more entities engage this creative tool. While I don’t expect growth to continue as rapidly as during the early stages of the pandemic, formations will continue at a steady pace.