www.captiveinternational.com CAPTIVE MANAGEMENT 11
where some clients might leave the
management company because they
don’t like the new owner,” he says.
One reason this might occur is where a
buyer has different strategic ideas. They
could also increase management fees.
“There’s a new CEO in charge who looks
at it as a profit centre,” says Barile. “That
can mean the new buyer may say it is
raising the captive management fees.”
Barile advises captive clients to
look at their captive management
agreement and see what their rights
are, how much notice should be given
to evaluate the change in management,
and whether their new captive manager
is prepared to sit down and explain the
implications of the new ownership.
New managers may not understand
the captive’s reinsurance arrangements,
or the captive’s exposures and the
policies they need.
Each captive is unique. As Barile
explains, a captive writing nursing home
professional liability insurance or a
captive writing workers’ compensation
will be completely different in nature
from other forms of insurance.
“Don’t forget the seriousness of what
the captive manager does for a captive,”
says Barile. “The captive manager is
doing the policy issuing, doing the
ratings, buying the reinsurance for them,
and doing the financial statement.”
His biggest concern is that captive
managers are responsible for setting
reserves for future losses. That takes
an intimate knowledge of the portfolio
which a new manager may not have.
“When you delegate the management
under that contract, and you have no
employee oversight in the captive—
or the whole board of directors of
the captive are people who work for
the parent corporation—how much
oversight do they have if none of them
at the board level has worked for an
insurance company?” he says.
“I’ve looked at certain captives where
the entire captive was run by the
management company. When I looked
over the resumes, none of the offices
or the board of directors of the captive
had worked for an insurance company.
So where is the oversight over the
captive manager being delegated?” l
“The captive client today is in a world
of disruption and change. They have to
be on top of everything they are doing
because the service providers around
them are all in motion,” says Barile.
He recalls situations where he has
called captive owners to discuss the
change in their captive management,
only to find that is the first they have
heard of it.
“Many captive owners have stayed
with the same people for years and never
evaluate that part of their structure until
it becomes an issue,” he says.
But he believes that if captive
management moves ownership, captive
owners should reassess their position
with the management company.
A number of issues can crop up.
Sometimes a captive manager can end
up with too many clients and not have the
resources to service them all properly.
“I have spoken to captive managers
in Vermont who manage 300 captives
when there aren’t even that many
working days in the year. The business
is very stretched out.”
This can cause many problems, Barile
explains, including a lack of oversight
of the captive, financial statements
not getting done in time, and captive
managers generally not having enough
time to meet the owners of the captives
Equally, a client might ask for new
policies and discover they are incorrect,
“The sale forces the captive owners
to pay attention to their captive
management company and look at what
services are being provided,” he adds.
Fortunately, there is often a clause
in the captive management agreement
where the captive has the right to
terminate its agreement and move on
to another management company, or
has six months to do so, Barile notes.
Repercussions of M&A
In every M&A transaction there is
always some fallout, and there may
be conflicts that neither party knew
existed, according to Barile.
“A company might sell its captive
management operations and get the
cheque but now you have an issue
ndustry headlines of
operations being sold
on highlight the need for
captive owners to be more proactive in
looking at their existing arrangements
and knowing what their rights are if the
management company changes.
This is according to consultant
Andrew Barile, CEO of Andrew Barile
Consulting, who argues that as the
pace of change in the captive sector
has increased, owners must be more
proactive in their approach to using
“A captive manager can end
up with too many clients and
not have the resources to
service them all properly.”
istockphoto / Antikwar