Florida Banking February 2023

branches could potentially be impacted by another hurricane. The bank evaluated its options and ultimately decided to form a captive to help pre-fund for these potential losses. In addition to hurricanes, catastrophe insurance protects businesses against natural disasters such as earthquakes, floods, fires, tornados and hail, and against human-made disasters like riots or terrorist attacks. These are all situations for banks to consider captive coverages. Why is Now the Time for Community Banks to Evaluate Captives? The popularity of captives is seen in close to 95 new captive insurance company formations in the 10 largest U.S. domiciles. Taken together, there are some compelling reasons for banks to assess their current

coverage for M&A transactions, and legal expense coverage for class-action nuisance suits. • COVID claim rejections: Whi le many commercial carriers have denied COVID business interruption claims, KeyState’s Captive Management program has settled more than $4 million in COVID claims. David Guerino is senior vice president & managing director-captive insurance for The KeyState Companies, which manages tax advantaged investment and insurance structures for over 130 community banks across the country. He oversees KeyState’s Bank Captive Program, which has been endorsed by 27 state banking associations including the Florida Bankers Association.

needs and future scenarios where a captive could cover unfunded risks: • Commercial premium increases: Along with i nc r eas i ng cos t s for natural disasters, cyber coverage premiums are up 20 to 40 percent, while banker ’s profess ional liability and crime bond premiums have risen 10 to 30 percent. • Commercial coverage limits: Higher deductibles, b r o a d e r e x c l u s i on s , and sub-limits applied to cer tain coverages make captives a viable alternative. • Coverages not available

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