Captive insurance in Alberta: Another tool in the toolbox

"This new legislation has opened up lots of opportunities," says captive manager

Captive insurance in Alberta: Another tool in the toolbox

Life & Health

By Bethan Moorcraft

Alberta has established a new regime of captive insurance, allowing organizations to insure themselves against risk instead of buying insurance from a third party.

The Captive Insurance Companies Act, which came into force on July 1, 2022, allows Canadian employers to form captive insurance companies domiciled in Alberta, giving them access to alternative risk solutions that lower insurance costs and enhance coverage.

Quick to react, insurance broker and risk consultant NFP Canada has since launched a new business, NFP Captive Management (Alberta) Corp., which can form and administer Alberta-domiciled captive insurance companies for clients.  

In the face of rising costs and challenging coverage access – two key characteristics of a hard insurance market – industries in ‘The Energy Province’ have called on the provincial government to provide more efficient and cost-effective solutions.

“Alberta has listened to industry and this new legislation has opened up lots of opportunities,” said Sam Jackson (pictured), VP of captive management at NFP Canada. “Alberta has set up a captive regime, NFP Captive Management is open for business, and we’re here to support any business that wants to evaluate and execute a captive structure.”  

Jackson joined NFP Canada in April 2022, bringing over two decades of industry experience to the firm’s Complex Risk Solutions Group (CSRG). He joined NFP from Rogers Insurance, where he served as a senior broking advisor evaluating alternative risk financing opportunities. Before Rogers, he spent over a dozen years at the Energy Insurance Group, where he oversaw all operations for their energy clients’ insurance programs.

His primary tasks at NFP Captive Management will be to guide clients through the complex processes of filing a captive application, securing a license, setting up a captive corporation, and then helping clients to manage their captive corporation by facilitating regulatory submissions and reporting, underwriting and claims, investment policies, actuarial and audit reports.

First things first, clients must conduct a feasibility study to determine whether a captive is the right choice for them. Jackson explained: “A captive is another tool in the toolbox for a company to evaluate and manage their risks. Most companies look at their risk exposures and say: ‘We can take this much risk, but we want to buy insurance to cover unexpected events.’ Once they start thinking: ‘Hold on, I’m spending a lot of money on insurance, and I’m making very few claims. Is there a better way to manage this?’ – a captive is a tool they can evaluate.

“It depends on a client’s risk profile and their insurance spend. Often, companies don’t have the insurance spend to justify setting up a captive on their own, but they can look at group captives, reciprocals, and other structures [with similar, well risk-managed companies] who are looking for tools to help manage their risks. If they have the risk appetite and the capital required to manage and own their own captive insurance entity, we can then help them out with that process.”

Some industries and risk classes are more eager to form captive structures than others. In Alberta, the energy industry has faced significant insurance challenges in recent years, with insurers pulling back due to environmental, social, and governance (ESG) pressures. Captives are an alternative risk solution for energy companies to secure coverage they can no longer access from traditional markets.

According to Jackson, many large energy companies in the province already have captives in other jurisdictions like Bermuda or Barbados, and they use third-party captive managers to run those corporations. With the enactment of the Captive Insurance Companies Act, they can now form captives locally and work with local experts to manage their risks.

“Captive solutions meet the needs of lots of industries,” Jackson added. “The condominium and residential real estate marketplace has seen some substantial rate increases in recent years, and this legislation opens the door for them to evaluate other options. There’s also an opportunity for commercial transportation companies, taxi companies – basically in all industries where companies have substantial risks and they’re looking to manage those risks more effectively. Sometimes, it makes more sense to set up a captive insurance entity than to self-insure risks.”

Now that the Captive Insurance Companies Act has come into force, there’s an opportunity for local insurance brokers to get familiar with the legislation, what it means for clients, and when it makes sense to go down the captive route.

“We’re happy to have that conversation with any broker,” said Jackson. “While we are NFP Captive Management, we have set up as a separate company so that we can work with other brokers and their clients to manage their captives and help them out. I’ve had conversations with other independent brokers, and I’m happy to support them in meeting the needs of their clients and trying to set up their captives.”

NFP Captive Management already has its first captive insurance application in with the Alberta regulators. If approved, this will be the first captive officially established in Alberta.

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