The convergence of the banking and insurance industries and offshore finance finds its apogee in the person of Eugene Justus. He talks to Alison Craig.
Based in Detroit, Eugene Justus is first vice president and manager of Comerica Bank's captive insurance group and manages the bank's Cayman Islands branch. He is also chief financial officer of the bank's Bermuda trust company and a director of its Bermuda-based insurance captive. Comerica's captive insurance group is involved in all the major domiciles, offshore in Barbados, Bermuda, the British Virgin Islands and the Cayman Islands and onshore in Vermont, Colorado and Hawaii.
“What we are finding is that the risk management function increasingly reports to the treasurer or chief financial officer of our corporate clients,” Mr Justus says. “Corporations are looking at risk at the total enterprise level, so risk management now forms part of most companies' financial planning.”A banker's primary corporate contacts are treasurers and chief financial officers. As a result, banks no longer act merely as providers of capital. Banks and chief financial officers speak the same language. “We are in a unique position to introduce the concept of captive insurance and alternative risk finance programmes to them,” Mr Justus states.
Although captives have been around since the pioneering days of Fred Reiss in the early 1960s, “many large corporations whom you might expect to have a captive, do not,” Mr Justus says. “When the concept is brought to the attention of a client, if the treasurer or chief financial officer expresses an interest, we bring together a team of experts in the industry, with whom we have established strategic alliances, to help to develop the captive to meet the specific needs of that client. We assemble captive management companies, attorneys who specialise in captives, audit firms and tax experts. We take the team to the chief financial officer and he brings in his risk manager.”
In this instance, Comerica is filling part of the role of the captive insurance manager. “Feasibility studies routinely include a review of suitable domiciles,” Mr Justus explains. “We ask: Onshore or off? The client may then wish to visit leading domiciles. We would take the chief financial officer to meet regulators and leading professionals in the domicile. We feel that is where we add value, and the time we spend travelling with clients proves invaluable to both sides as the relationship develops. And yes, the process does allow us to identify opportunities for additional banking services, such as new relationships or enhancements for existing clients.”
Once the captive is up and running, Comerica reverts to a more traditional capacity and provides a full range of banking services, including standby letters of credit, custody and asset management, reinsurance trusts and treasury management services. The bank also has a healthcare group which concentrates on lending to healthcare companies, a major sector of growth in the Cayman Islands.
As if his travel schedule were not sufficiently gruelling, Mr Justus has been travelling to Brazil of late. “Two years ago, the first captive relationship was established in Bermuda by a Brazilian firm,” he says, “and many Brazilian companies now have Cayman subsidiaries. Now that the government of Brazil is deregulating its insurance sector, a large number of Brazilian companies are looking at Cayman and Bermuda as the domiciles of choice because they already have subsidiaries there. Growth in Cayman is likely to be fuelled by Brazilian and other South American countries.”
Eugene Justus is bullish on the prospects for the offshore captive industry. “We are seeing interest from around the world... from Latin and South America, who tend to choose Cayman or Bermuda, from South Africa, where companies may choose Guernsey and from Japan, where Hawaii is often the domicile of choice,” he says.
“Now that we are starting to see hints of hardening in the market, and because of new lines of business which may be put into captives, such as employee benefits, we believe today that the growth of the captive market will accelerate in the next five years.”
At the time convergence was first debated, securitisation was also an issue. Hard though it is to believe now, there were those who said securitisation would never happen. Now growth in the securitisation arena, Mr Justus explains, could make it possible to form an offshore mutual fund as part of a securitisation process. “That fund would enable captives to purchase risks by making an investment in the fund, which may qualify as a third party risk and assure the tax deductibility of premiums. That appears to be attractive to several of our largest captive insurance clients,” he says.
One recent development Mr Justus notes - a classic case of convergence in action - is of large clients approaching Comerica to provide lines of credit or credit facilities through captive insurers, to serve as an ultimate catastrophic layer for insurance requirements. “They never anticipate piercing the layer but have it available as guarantee of payment,” he explains.
Not long ago, convergence of the banking and insurance industries was an issue; today, in the hands of Mr Justus and his colleagues at Comerica bank, it has become a practice.
Eugene Justus was in conversation with freelance journalist Alison Craig.Comerica is celebrating its 150th anniversary this year. The bank's strength is its commercial lending around the world.