Last month, GCM celebrated our own Alanna Trundle’s inclusion in Captive International’s Forty Under 40. The captive industry is in safe hands with these 40 established Gen Y/Millennials in an industry developed over the decades by many Baby Boomers and fellow Gen X’ers.
Reflecting on the accomplishments of these 40, I was drawing parallels to the many ownership and leadership transitions of our own captive owners, directors, and officers, alike. I wanted to provide some insight that might help you in your captive’s succession planning objectives.
Current Cayman Islands captive owners, Directors, and Officers are likely well versed on the 2019 Cayman Islands Monetary Authority’s (CIMA) own Statement of Guidance Succession Planning (the “Guidance”). The Guidance is intended to provide CIMA’s minimum expectation of the succession planning the Board of Directors or Governing Body must document to ensure licensees’, including captives, continuous and seamless operation in the event of a related change. The Guidance further expands this planning should not only address the transfer of key leadership but also ownership itself. The Guidance stresses the importance of transitions when there are two or fewer shareholders and/or the statutory minimum of two directors.
Items to Consider in Captive Succession Planning
There is a lot to consider under the Guidance, especially when no two captives are alike, as there are plenty of ownership structures and various captive options including single parent captives, group captives, segregated portfolio companies, portfolio insurance companies, and segregated portfolios.
Fortunately, the Articles of Association of the captive should outline the terms of transmission, transfer, repurchase, surrender, and redemption of shares. Additionally, there may be other legal agreements such as a Shareholder Agreement or offering document such as a Private Placement Memorandum, which must be considered when a captive owner effectively plans for the ownership succession of the captive.
In a simple situation where a privately owned organization wholly owns a captive insurer, we commonly see the shares owned either by one individual, many individuals, a partnership, a limited liability company, corporation, or trust. The legal succession planning for the ownership of the shares would differ under each scenario.
The scenario of one individual owner will need to include the shares in their will and testament in the event of the untimely passing of the owner, and the captive should document specifics of survivorship, which may be tricky to navigate when other aspects of their will are not even disclosed to beneficiaries.
Succession for Publicly Owned Captives
Ownership succession is different for publicly owned captives. Since the shares are owned by a public corporation, there is generally not a formal succession plan given the natural perpetuation of the corporate owner.
Notwithstanding there still could be a change in ownership due to a corporate merger, the succession plan can focus on the Board of Directors or Governing Body such as an Executive Committee. Once again, the Articles of Association will detail the appointment, removal, and powers of Directors.
A publicly owned captive tends to have a larger Board of Directors than a privately owned captive, so there tends not to be a high inherent risk of dropping below the minimum number of Directors. However, for a planned future retirement of a Director, the Board will need to consider the make up of the remaining members to determine the ideal Director appointment. A departure could result in the Board needing additional expertise in reinsurance or financial and treasury management, or perhaps even an independent Director may be of value.
Additional consideration should also be given to a key employee of the public organization who may not hold the position of Director or Officer. Often, there is a “point person” to liaise between the captive manager and all of the public organizations’ departments that are involved with the captive such as Risk, Legal, Tax, Treasury, and Accounting, to name a few. The Guidance might lead the licensee to consider this a person in a controlled function, which is holding a role critical to operations.
Furthermore, the Guidance contemplates both short-term and longer-term absences and even incapacitation of this potential controlled function. In this situation, the guidance indicates the persons, and their successor, should receive the appropriate training and knowledge to carry out their role, which is something an owner would normally plan for in their own organization, thus, the captive is no different.
Training is likely provided within the owner’s organization, but it can also come from other sources such as the broker, captive manager, actuary, or tax provider, for example. Additionally, somebody new to the captive, whether a Director, Officer, or person providing a controlled function, could consider attending the annual Cayman Captive Forum, which provides excellent learning and networking opportunities.
Reach Out for Help with a Successful Succession Plan
I’m sure succession planning is something you already consider in your own business; however, as an owner, Director, or Officer, it is a regulated requirement. Careful consideration should be given to planning all aspects of a captive’s thorough succession plan. Afterall, you can’t have succession without success, and this comes from investing the time to adopt a plan commensurate with the complexity of the captive itself!
If you’d like to talk with us about this or have questions as you look at your own succession plan, please don’t hesitate to reach out to us. We’d love to chat!