{Q} Based on Comerica Bank’s experience in the captive insurance sector, what key trends have emerged in businesses’ use of captives as a strategic risk management tool over the past three decades?
Comerica Bank has been providing banking services for captives for over 30 years.
Most of the captives we worked with in the early days were large, single-parent captives.
Over time, we saw many mid-sized companies — likely too small to justify establishing their own captive — benefit from captive insurance through participation in group captives and, later, segregated account captives.
More recently, even smaller companies have started participating through micro captives, covering enterprise risks that are often excluded from traditional insurance policies.
We have also seen all types of captives expand their coverage into new insurance lines such as cyber, business interruption, and medical stop-loss.
{Q} As global business complexities continue to evolve, what role do established financial institutions like Comerica Bank play in offering stability and guidance to captive insurers facing these uncertainties?
Established financial institutions should have market acceptance for their products and services. They should be able to offer a full range of specialised banking services for captives, both onshore and offshore, and match clients with the products and services that best suit their needs. They should understand the requirements of the various parties involved with captives, such as captive managers, fronting carriers, and regulators.
Their letters of credit (LOCs) and reinsurance trust agreements should be worded in a manner acceptable to both captives and carriers. In addition, the bank’s LOC draw and disbursement processes should be straightforward and executed in a timely manner, which, over time, builds confidence in the institution.
A bank that is long-established, highly rated, National Association of Insurance Commissioners (NAIC)-approved, and recognised for delivering quality service also contributes to long-term stability.
{Q} Beyond the transactional side of banking, what are the overlooked yet essential ways a long-term financial partner can strengthen the success and resilience of a captive insurance programme?
Banking partners should be highly knowledgeable and stay up-to-date with the latest developments and regulations in captive insurance. This enables them to understand the requirements and provide creative banking solutions that streamline both the account opening and ongoing account management processes.
Timely and accurate reporting is also essential, as it allows the captive manager to produce reliable financial statements for captive owners and regulators.
Banks should have the necessary systems and reporting tools to support the captive in preparing its regulatory filings (e.g. Schedule D for investments). Finally, banks should offer treasury management services with online access to both onshore and offshore deposit accounts, and enable the captive to transfer funds electronically as needed.
{Q} As regulatory demands continue to evolve, what key principles should captive insurers prioritise when choosing a banking partner to maintain long-term compliance and operational efficiency?
Captives should seek out a bank that understands the captive insurance industry.
The bank should also be NAIC-approved and highly rated, ensuring that the LOC or reinsurance trust collateral they provide is acceptable to fronting carriers and regulators. They should be familiar with the language required by carriers in LOCs and reinsurance trust agreements, as well as the types of investments permitted under a Regulation 114 trust agreement.
{Q} While technology is reshaping industries, what unique considerations and challenges arise in integrating it within the traditionally conservative captive insurance sector, particularly in financial services?
Banks and insurance carriers are highly regulated, so significant compliance and due diligence are required for captives. Banks employ various technologies to screen and monitor transactions against government lists (e.g. the Office of Foreign Assets Control sanctions list). Despite this increased scrutiny, a major fraud known as Vesttoo occurred in 2023, involving forged and fraudulent paper LOCs.
This has accelerated the shift towards LOCs issued electronically via the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system — a secure messaging network used by member banks and other financial institutions.
We are also seeing more carriers contact the banks issuing their LOCs to verify their validity. Similarly, banks are confirming their back-to-back LOCs with the banks issuing them on behalf of members in group captives.
{Q} Reflecting on Comerica Bank’s history in the captive space, what key moments or industry shifts have shaped how captives operate and interact with financial partners?
Most captives now have online access to our systems, allowing them to view their trust or deposit balances at any time, rather than waiting for statements by post.
Most documents are also now in electronic format, saving both time and money.
On the LOC side, most captives receive a collateral report, enabling them to be proactive and ensure sufficient collateral is maintained at all times to secure their LOCs.
{Q} As the captive market matures, what best practices are emerging in financial management and banking relationships among successful captives?
Successful captives maintain good communication with their banking partners. Since it can take time to approve credit facilities or open new reinsurance trust accounts, providing early notice of what is needed helps make the process more efficient.
In addition, the investment manager must be aware of what qualifies as acceptable collateral under a LOC or reinsurance trust agreement, as they are often trading electronically within the account and must remain in compliance with collateral requirements.
{Q} What key financial and banking considerations are often overlooked by businesses exploring the captive model, and how can these impact long-term viability?
A well-managed captive typically maintains a strong balance sheet with a substantial surplus.
It should never fall short on the collateral required for a letter of credit or reinsurance trust, thereby avoiding the need for a margin call. If the bank shares its collateral reports with the captive manager, the manager can take a proactive approach to ensure there is always a sufficient collateral cushion. The captive usually has a well-written and clear investment policy, so there is no ambiguity around which investments are acceptable when the investment manager is executing trades.
{Q} What innovative roles could financial institutions play in supporting the evolving needs and structures of captive insurance programmes?
Banks will need to understand any new captive structures, just as they did when segregated account captives were first introduced, so they are aware of the documentation required to open accounts.
For example, segregated accounts required banks to collect segregated account participation agreements and to understand how to correctly title the accounts. Offshore accounts often have additional requirements, such as due diligence on directors and the collection of a register of members.
Banking systems should continue to evolve to allow captives to initiate transactions — such as account disbursements — from any location and at any time, with the potential for greater use of blockchain technology to reduce fraud risk.
In addition, banks are expected to make greater use of artificial intelligence to screen transactions and enhance the customer experience.
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