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Location, Location….RE-location. Is your captive in the best domicile?. Introductions. Moderator: Philip Barnes, Managing Director, Aon Insurance Managers (Bermuda) Ltd. Panelists: Gregory Goodrich, Senior Director, Risk Finance Stanford University Medical Center

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Location location re location l.jpg

Location, Location….RE-location

Is your captive in the best domicile?


Introductions l.jpg
Introductions

  • Moderator:

    • Philip Barnes, Managing Director, Aon Insurance Managers (Bermuda) Ltd.

  • Panelists:

    • Gregory Goodrich, Senior Director, Risk Finance Stanford University Medical Center

    • Susan Lane, Vice President-Business Development, Aon Insurance managers (Bermuda) Ltd

    • Leslie Robinson, Assistant Director, Insurance Licensing & Authorisation, Bermuda Monetary Authority


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Background

  • Stanford University Medical Indemnity and Trust (SUMIT) Insurance Company was incorporated in Hawaii on March 23, 2000

  • Provide Hospital Professional Liability (including Comprehensive General Liability, Healthcare Professional Liability, Miscellaneous Errors and Omissions and Managed Care Liability) and Employment Practices Liability to the following entities:

    • Stanford Hospital,

    • Stanford Clinic (Physicians associated with the Stanford Hospital),

    • Lucile Packard Children’s Hospital,

    • Packard Clinic (Physicians associated with Lucile Packard Children’s Hospital) and

    • Stanford University (School of Medicine).


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Background

SUMIT Hawaii

  • Originally structured as a not-for-profit, single-parent captive

  • Restructured in 2005 to accommodate separate accounts for hospitals and faculty practice plans

  • IRS letter authorizing non-profit captive status restricted uses of vehicle


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Making a Move

  • Member hospitals are 2 separate 501(c)3 corporations

    • independent operations

    • divergent interests and

    • strategic plans

  • Objectives:

    • formally separating assets and liabilities but sharing the costs of captive administration and reinsurance purchasing

    • Desired flexibility to write other lines of insurance and third party business

    • Operate in a domicile as a segregated accounts general insurer in order to legally separate the assets and liabilities of the insureds


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Moving Options

  • Form new Bermuda company and place SUMIT Hawaii in run-off

  • Transfer insurance and reinsurance contracts to new Bermuda company and portfolio transfer of liabilities and subsequent dissolution/liquidation of SUMIT Hawaii

  • Continuance/Discontinuance process


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Continuance Process

  • Stanford Risk Management, Aon and McDermott Will & Emery conducted extensive due diligence to consider methods to accommodate SUMIT objectives and select an appropriate domicile

  • Desire to utilize captive for other lines of insurance and third party business indicated use of offshore captive

  • Bermuda and Cayman domiciles were compared


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Choosing Bermuda

  • Considered the Segregated Accounts Companies (SAC) Act in Bermuda is the most comprehensive and sophisticated of any captive domicile in the Western Hemisphere

    Bermuda lawyers will opine that contracts between cells or the core and the cells are valid and legally enforceable. Cayman lawyers refuse to so opine.

  • Bermuda’s reputation: robust and experienced regulatory regime

  • Experienced and quality service providers


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Continuance Planning

  • Select key business partners:

    • Bermuda Insurance manager:

      • Aon Insurance Managers (Bermuda) Ltd

    • Bermuda legal counsel:

      • Appleby

    • US legal counsel:

      • McDermott Will & Emery

  • Develop continuance process plan outlining:

    • Key steps

    • Role responsibilities

    • Timetable

      • Items to consider

      • Potential delays

    • Cost


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Continuance Process – Key Steps

  • SUMIT Board approval for the continuance

  • Coordinate discontinuance approval and certificate of transfer from Hawaii Regulator

  • Notice of change to existing service providers

  • Preparation of application for continuance to BMA

  • BMA due diligence procedures and continuance approval

  • Issuance of certificate of continuance by the Bermuda Registrar of Companies and registration of Company in Bermuda

  • Operating in Bermuda


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The Regulator’s Perspective

  • The Licensing Process

    • Assessment & Licensing Committee

    • Effective and thorough analysis of applications

    • Applications reviewed on a case by case basis

    • Supervisory cooperation key element


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The SUMIT Insurance Company Case

  • Initial Meeting with BMA

  • Discuss business plan and reasons for moving

  • Outline ALC application process and required documentation

    • Timeline

    • Business plan and pro forma financials

    • Support for loss reserves

    • Compliance documents from outside jurisdiction

    • Information on Parent Company

    • Information on Proposed Directors/Senior Management

    • Information on local service providers


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The SUMIT Insurance Company Case

  • Submission to ALC

  • Additional support needed for loss reserves – on a cell by cell basis and for run-off business

  • Approval of business plan

  • Continuance/Incorporation Documents submitted

  • Contact with Hawaiian regulator


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The SUMIT Insurance Company Case

  • Discussions with Hawaiian Regulator

  • Compliance status of the Company

  • Any actions taken in respect of the Company

  • Information on Directors/Senior Management of the Company


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The SUMIT Insurance Company Case

  • ALC Approval

  • All minimum licensing criteria met

  • “No Objection” given by BMA to the ROC for the Continuance/Incorporation

  • ALC recommendation for approval of SUMIT to be licensed as Class 3 Insurer

  • “No Objection” given by BMA to ROC for SUMIT to be registered as a Segregated Accounts Company


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The SUMIT Insurance Company Case

  • Issuance of Class 3 Insurance License

  • Submission of Form 1B and applicable fees

  • Receipt of Discontinuance Certificate, Continuance Certificate, Incorporation Certificate, SAC Registration Certificate

  • Confirmation that capital has been paid

  • Certificate of Registration issued by BMA


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Challenges

  • Identifying numerous steps in the process

  • Managing the timeliness of the process

  • Coordination of concurrent tasks

  • Communication between domiciles

  • Continuance/discontinuance not an everyday process


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Additional Steps for SUMIT

  • Formation of Delaware LLC due to California legislation regarding ownership of offshore entities

  • Tax issues with regard to not-for-profit status

  • Formal conversion to Segregated Account Structure and related financial reporting allocations

  • Board communication

  • Drafting Bermuda bye-laws suitable to SUMIT’s operational structure

  • Drafting segregated account participation agreements


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Becoming Operational

  • Hold first Board meeting to ratify and approve:

    • Officers

    • Board of Directors

    • Open Bermuda bank accounts

    • Appoint Bermuda service providers

    • Approve Segregated Account participation agreements


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Lessons Learned

  • Being creative takes time

  • Preparation is key

  • Understanding regulatory requirements

  • Communication, Communication, Communication!


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Thank you

Questions?


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