Case study in captives: Nuclear power industry


Nuclear Power
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By Joyce Carroll

Special to Delaware Business Times

Captive insurance can be most beneficial in fields where property and casualty coverage is costly or difficult to obtain because of the nature of the business. The nuclear power industry is one such field.

Nuclear Electric Insurance Limited (NEIL) is a great example of how captives can achieve cost savings through economy of scale while providing a service to an industry with risk challenges. Now 80 members strong, NEIL’s longevity and financial success are perhaps the greatest indicators of how a well-run captive can efficiently and effectively serve its members.

As documented in its annual report, NEIL ended the 2014 calendar year with a surplus of nearly $4 billion. As a mutual insurance company, policyholder distributions are a significant component to achieving the provision of low-cost insurance.  In 2014, the company’s overall financial position allowed for the distribution of $100 million to the members and about $12 million in performance credits.

NEIL’s insurance includes up to $1.5 billion in property damage coverage in its primary property program, with an additional limit of up to $1.25 billion in its excess property program.  NEIL’s accidental outage program provides up to $490 million for costs associated with certain long-term outages.  As an industrial-insured captive, the risks of its members are pooled.

NEIL traces its roots back to 1973 and the formation of Nuclear Mutual Limited (NML) in Bermuda.  NML initially provided coverage for 14 U.S. nuclear power plants. A key reason NML was created – and it remains an important objective for NEIL’s members today – was self-determination. The members who started NML were not satisfied with what the commercial market was offering from a premium and coverage standpoint, and determined they could better manage their insurance risks through a captive.

NEIL was formed in 1980 to fill insurance gaps that were identified as a direct result of the Three Mile Island accident near Middletown, Pa, – accidental outage and excess property coverages.  As with NML, NEIL was formed as a Bermuda captive. The two companies were operated as sister companies supporting the U.S. commercial nuclear power industry.

In 1988, the two companies relocated to Wilmington, and nine years later they merged, with NEIL being the surviving company.  In 1998, NEIL formed a subsidiary, Overseas NEIL Limited (ONEIL), in Dublin, Ireland, to explore non-U.S. markets.  Today, NEIL insures some degree of risk for all U.S. commercial nuclear power plants and, through ONEIL, all operating commercial nuclear power plants in Belgium and Spain.  In addition, NEIL provides Builders’ Risk coverage for four new nuclear plants currently under construction in the United States – two units  on each of two sites located in South Carolina and Georgia – and one plant owned by the Tennessee Valley Authority that is being completed following a suspension of its construction.

As to NEIL’s move from Bermuda to Delaware, while the state was not considered among the leading captive domiciles in 1988, it offered benefits that made it an attractive domicile for NEIL.  A significant factor was the strong collegial environment in the state that enabled good relationships to be developed with the Department of Insurance.  NEIL’s strong relationship with its primary regulator continues today.

Another important factor to NEIL was a unique provision in Delaware’s Captive Insurance Act that allowed NEIL to move its operations to Delaware, and become licensed as an Industrial Insured in the State, without having to reform as a Delaware company.

Thus, NEIL’s headquarters are in Wilmington, but it remains a Bermuda company.  Today, NEIL employs approximately 70 people with all but six working in Delaware.

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