Q&A : Delaware’s 1,000th Captive, American Water and AWI

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(Interview conducted with American Water officials.)

What is American Water’s line of business?
Founded in 1886, American Water (NYSE: AWK) is the largest and most geographically diverse publicly traded U.S. water and wastewater utility company. With headquarters in Voorhees, N.J., the company employs 6,800 dedicated professionals who provide regulated and market-based drinking water, wastewater and other related services to an estimated 15 million people in 47 states and Ontario, Canada.

How does the captive insurer, AWI, Inc., fit into the line of business?
AWI, Inc. is a subsidiary of American Water, formed in 2015, and provides services to all American Water subsidiaries.  We formed the captive to provide American Water and its subsidiaries the most effective and efficient insurance program.

What was the reason for forming AWI?
Forming a captive provides many benefits for American Water, including access to the reinsurance market, leverage for and alternatives to the commercial insurance market and access to the U.S. Terrorism Risk Insurance Act (TRIA) and other coverage.  American Water formed a captive insurer for a variety of reasons. Our overall goal is to have best available coverage at the lowest possible rates in all insurance market conditions. We believe that the captive provides an improved negotiating position in the commercial insurance market and will provide us with greater flexibility and control over risk-financing needs without relying exclusively on the traditional commercial insurance market. In addition, the formation of the captive provides American Water with access to the TRIA, which provides broader nuclear, biological, chemical and radiological coverage.

What advice can you provide to others who are considering forming a captive?
I would say the most important early factor is to select a knowledgeable captive management company with which you and your colleagues will work well and that will work well with your existing outside insurance advisors as well as with the regulators in the state you select as your domicile. Develop a detailed feasibility study and work plan early on that includes a domicile review and the anticipated impacts of forming the captive including, legal, tax, and financial assumptions.  It is important to understand the critical path and key decision points along the way when deciding to form and launch a captive.

What made American Water select Delaware as its captive insurance domicile of choice?
American Water wanted the captive domiciled on shore (within the United States). We looked at the leading captive insurance states and chose Delaware for a variety of reasons. Communication is one reason. The Captive Bureau at the Department of Insurance worked with us to achieve our goals and objective. We also considered the fact that American Water is a Delaware corporation and the proximity of American Water’s headquarters to Delaware,

How accessible and responsive are Delaware’s captive insurance regulators?
The Delaware captive insurance regulators have been extremely responsive, available and knowledgeable.

 

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