Many captive insurers, especially captives organized as risk retention groups, have found themselves victims of the recent shrinkage in the banks’ abilities to make credit available to clients. Insurance regulators permit captives to use letters of credit (LOC) with evergreen clauses as an admitted asset in order to satisfy their statutory minimum capital and surplus requirements. In other instances, reinsurance captives use LOCs to provide collateral to fronting carriers who want collateral to cover their risk exposures. In recent weeks, many financial institutions have been reevaluating the credit worthiness of these captives as well as the financial strength of the company or corporation that is the parent of the captive. As a result of this review, some banks have decided not to extend LOCs beyond their current expiration dates. These changes have presented serious challenges for some captives because they will not have sufficient capital to operate without their LOCs. There are still banks that are willing to provide LOCs, but the captives must shop around to find these institutions, and when they are found, the terms are not as favorable as they were in previous years.

Impact of Lehman Brothers’ bankruptcy on District captives
 
DISB has reviewed the financial statements of licensed captives and it has determined that at least a half-dozen licensed captive insurance companies held stock in Lehman Brothers Holdings, which filed for bankruptcy protection on September 15, 2008. It appears that their aggregate investments in Lehman stock are minimal. Thus, if the value of the investments is reduced to zero, the losses experienced by these companies will be minimal and they will have significant assets remaining to meet their obligations to policyholders. DISB will continue to monitor this situation closely.
 
However, despite the dire financial news, the District of Columbia continues to attract new captives. DISB recently licensed Consolidated American Rental Insurance Company Ltd. (CAR), a captive insurance company subsidiary of Fitzgerald Automotive Group headquartered in Rockville, Maryland. CAR is licensed to provide commercial auto and garage keepers’ liability coverage for Rent-A-Wreck of America franchisees. The Rent-A-Wreck franchise is owned by Fitzgerald and has locations across America and internationally in Norway, Sweden, Denmark and Iceland. Fitzgerald, through its management company, JJF Management Services Inc., also owns and operates several Budget and NextCar car and truck rental locations with 2,500 vehicles, and 33 automobile and truck dealerships in 13 locations in Maryland, Pennsylvania and Florida.