Mike, you’ve had a long and varied insurance career. When did you first become involved with captives and in what capacity?
I became involved around 1988, while the president of Fred. S. James & Co. of Illinois. One of our producers came over from Johnson & Higgins and brought along a couple of captives that he had set up. I, and all of us at James, had to get quickly up to date on what this thing was. I attended their meetings. Many were in the Toronto airport hotel as they were Cayman captives.
The more that I came to understand captives, the more I liked them. James had been sold to Transamerica, then Sedgwick, then Marsh, and I was tired of all of the internal changes. So, I launched my own firm, doing captives.
At some point, you decided to focus primarily on the captive industry. What was the thinking behind this decision, and, looking back, are you happy you made this choice?
Expanding on my answer to the previous question, I could not be more satisfied than to have focused solely on captives for this period. I enjoyed having been an underwriter of surety and fidelity bonds for Aetna and being involved at a high level at a global brokerage, but captives are much more interesting, challenging, and fulfilling to me.
Given your historical perspective, what are one are two things that have most surprised you about how the captive industry has evolved?
I guess the huge numerical expansion of domiciles and the emphasis on taxes. In the early days, the main domiciles were Bermuda, Cayman, and Vermont. I was involved in the early setups of Arizona, South Carolina, and the District of Columbia.
Taxes are more of an issue now, primarily because of the development of 831(b) captives. If those were around when I started, certainly they were never discussed. If taxes were a concern, you went offshore. Otherwise, you paid and moved on.
Also, the turn-around of the traditional insurers. Back in the ’80s and ’90s, most of them hated captives and would not work with them under any circumstances.
Similar questions but from a perspective viewpoint: Where do you see the industry evolving, and what will be the keys to this evolution?
I see technology and younger minds substantially changing the industry. People under 25 are using devices and thought patterns that have not yet hit captives, but they shall do so. Captives are, and will continue to be, innovative. Younger people are innovative.
For individuals thinking about a potential career in the captive industry, what advice would you offer? And, how best can they go about preparing to pursue such a career?
Come to understand insurance. I think that today, with the evolving and innovative systems, many are ignoring underwriting, classifications, and rating. That underlies all in captives and should not be ignored for too long.
Thinking about captives and reinsurance, do you foresee a day when captives utilize the capital markets to a larger degree to fulfill their risk transfer needs versus purchasing traditional reinsurance?
Yes, and soon. Going back to what I said earlier about technology and younger thinking, I believe that we shall see soon the capital markets coming to captives. Some have, such as Greenlight Re, and the insurance-linked securities market will drive much of this.
Felix Kloman reportedly once said that the captive industry, if it ever found common ground, would be well served to create its own pooled reinsurance facility. Do you believe we will ever see something like this, where the majority of risk transfer occurs within the captive community versus the commercial market?
Yes, but one must bear in mind that captive owners come from many and widely varied sources. This drives their needs and wants. This is what Kloman meant, I think, by common ground. The needs of Ford Motor Company and a large plumber in Dubuque are very different, even if both have captives. It will take some clever work to bridge those grounds, for a common reinsurer, but I think that it will happen.
Any prognostications on where you see the regulatory and domiciliary arenas in the next 5 years or so?
I think that many domiciles will fade as regulators retire and legislators lose interest, as they always do. Regulators have their own long list of challenges, and having to solve them through the National Association of Insurance Commissioners (NAIC) is a formidable task. I believe that change will be forced upon the NAIC, and the result will be interesting to us all.
Any closing thoughts on captives you’d like to leave with our readers?
Use your imagination, but never lose sight of the underlying insurance principles.
Mike, thanks for your time.
Michael R. Mead, CPCU, writes about captives for IRMI.com. He also serves as editor of Captive Insurance Company Reports (CICR), published by IRMI. Mr. Mead is a veteran of the insurance industry, serving in a variety of roles: regional director of a global broker, an underwriter, and an entrepreneur starting and operating several insurance-related companies. He is past chairman and director of the Captive Insurance Companies Association, past president of the Missouri Captive Insurance Association, past vice president and director of the International Center for Captive Insurance Education, director of the Captive Insurance Council of the District of Columbia, and past president and director of the Arizona Captive Insurance Association.
He serves as the principal at M.R. Mead & Company, independent captive management and consulting services provider, and he also serves as a director, secretary, and treasurer at Constitution Insurance Company LLC of Delaware, a special purpose captive using serial LLC entities. Mr. Mead has headed captive management firms in the District of Columbia, South Carolina, the Cayman Islands, Missouri, and Arizona. Clients range from national firms to privately held corporations. He was president of a Cayman Islands Private Placement Life Insurance Company focused on customized structures for high-net-worth individuals for asset protection and wealth preservation.