SRS CEO Brady Young explains the areas of the market SRS plans to allocate investment to in an exclusive interview with Captive Review
SRS wants to use its new investment war chest to branch out from the traditional captive management and captive consulting space into value-added services for its clients. That’s according to SRS CEO Brady Young, speaking to Captive Review in an exclusive interview about how the company intends to keep growing following the investment by Integrum in February this year.
The types of value-added services Young said are being considered include asset management and advisory, and actuarial services.
Building out these capabilities could happen through acquisitions, strategic hires, or a mixture of both, Young explained.
Currently SRS doesn’t offer clients these services and can only suggest third-party specialists to manage these aspects of the captive’s operation. This is except for actuarial services, as SRS currently has several actuaries in their employment. Adding these new and expanded services would allow SRS to become more of a full-service partner for captive owners, Young stated.
Client demand
Young has built SRS from the ground up, having been a founding member of the company since its inception in 1993 and led its management buy-out in August 2002 to establish the company as an independent entity.
For his work in those three decades guiding SRS to the force it is today, he was earlier this year inducted into Captive Review’s Hall of Fame, and was the recipient of the Outstanding Contribution by an Individual Award at the 2023 Captive Review US Awards ceremony.
In all that time, Young said that when coming to decisions on how to keep growing the business, listening to what existing clients want, and creating solutions that respond to the biggest challenges they face, has been key.
Along with direct client interaction through an annual client symposium and board meetings, SRS also sends out an annual client survey that guides the company towards where there is the greatest demand for new capability. This provides valuable input on deciding what new service offerings are considered.
This is a dynamic company that is heading in the right direction. We share the spoils of victory and have built a really strong culture because we want the best people to want to come to work here and stay.
Pace of growth
Up until now the company has largely had to open new offices or invest in new capability at a modest pace, waiting until it is successful before investing again and launching the next new offering.
However, with this new investment, Young said that could all be about to change.
“We’ve basically had to bootstrap everything we’ve done in the last 21 years, investing in the company dollar by dollar, but that’s good because it forced us to be careful and disciplined about expansion,” he said. “But now what’s nice is we have a partner with significant resources, which means we can do things that we could only have dreamed of in the past.”
Young said the investment has energized him and the company to think bigger about what they can achieve and what SRS can become.
“We’re now thinking about bigger plays and bigger investments,” he said. “We have the financial reach to invest at a higher level, potentially with three or four different initiatives going at the same time. It feels like we have a clean canvas to work with and that’s very exciting for us.”
Employee benefits
Already SRS has started making moves to build out into new areas where the company sees there is client demand and opportunity for growth.
In July SRS established its first physical presence in Latin America by moving SRS Bermuda vice president Luis Delgado to Colombia and appointing him to the role of LatAm regional director.
And in August, Jeff Fitzgerald rejoined the company after 11 years to head up a new division focused on the establishment and growth of group and individual employee benefit programs.
Young said that employee benefits especially is a focal point for the company right now.
Employee benefits has been one of the fastest growing areas of captive utilization in the last few years, yet at SRS 90% of the underlying risks managed are property &casualty risks.
Young said in the next 5-10 years he’d like to get that balance closer to 50/50 in terms of P&C and broad employee benefits coverage, including medical stop-loss.
“If you look at companies using captives for health insurance and voluntary benefits in the US, and then add in multinational pooling as well as our group captive offering for voluntary benefits there has already been a hockey stick growth curve,” he said. “So we recognize that has to be a big growth area for us, and the ambitions we have are pretty high.”
In addition to Fitzgerald, SRS is adding new talent to its dedicated EB practice, and is bringing in new people to focus solely on growing a medical stop-loss practice.
“We’ve got about 60 single parent captives that are writing health insurance as one line of business in addition to other lines of business, but then we also have dozens of group captives operating like little mutuals where all that they’re writing is medical stop-loss,” he adds. “We want to do more of that and scale up this part of the business significantly.”
We’ve basically had to bootstrap everything we’ve done in the last 21 years, investing in the company dollar by dollar, but that’s good because it forced us to be careful and disciplined about expansion. But now what’s nice is we have a partner with significant resources, which means we can do things that we could only have dreamed of in the past.
ART
But Young’s vision for SRS extends beyond the captives pace and more broadly into alternative risk transfer (ART).
Increasingly he said clients are demanding more creative solutions where traditional insurance products can’t meet their coverage requirements, and Young wants SRS to expand into advising these clients on the best ways to plug coverage gaps.
This includes connecting clients with capital and designing be spoke solutions.
“Captives are an important alternative risk transfer tool, but solving the problem yourself with your own creative capital will only take you so far,” he said. “I want us to get more involved with insurance linked securities (ILS) and parametric solutions to provide a more holistic view that involves a captive, but also might involve other aspects.”
Particularly for large companies facing ESG challenges, such as those in the oil and gas space where much of the commercial market is now unable or unwilling to provide coverage, he said clients face big problems and need creative solutions.
Former AstraZeneca risk manager Neil Campbell joined the group when Allenby Consulting was acquired in March 2022, and Young said the group will look to build on his experience in advising on corporate risk financing and ART to global companies in the next few years.
“There’s a vacuum there and clients want more proactive, innovative, and creative solutions,” he added. “So you’re going to see us pivot a little bit and try to build more capabilities along the lines of what Neil Campbell and a few other people have done.
Insurance management
As the group makes this shift to becoming a business offering multiple different insurance-related services, Young said that the company no longer describes itself as a captive manager, instead calling itself an insurance management and consulting firm.
The group is taking on more non-captive clients, and getting more InsurTechs, MGUs and insurance and reinsurance companies coming to it for help setting up subsidiaries or special purpose vehicles.
Many of these companies won’t go to the global broking giants of Marsh, Aon or WTW because they are direct rivals or see a conflict of interest, but will use SRS for this work because of their independence.
“Those are interesting because instead of being a cost center, where they’re using the subsidiary to reduce their insurance costs, they’re actually using it as an offensive tool to help support their business and help generate revenue and profit. So, it’s a different dynamic to what captive owners are doing,” he said.
Activity in these areas is already ramping up in SRS’ Bermuda and Cayman offices, and with an additional nine US offices, plus offices in Canada, Barbados, South Africa and the European domiciles of Guernsey, Luxembourg, Ireland, France, Malta, Switzerland, the Netherlands and Sweden, the group has an established platform from which to find new talent and develop new offerings.
Young expects within the next five years SRS will also have an Australasia hub to service the APAC insurance industry, and has his ear to the ground for opportunistic acquisitions or hires in this market.
With so many different directions he wants to keep growing the business, despite handing over the SRS president title to Ron Sulisz in April, Young has retained the CEO title and overall management of SRS, and said he has no desire to slow down.
“It’s been over 20 years of leading SRS and people think it takes its toll and I’m going to start winding down, but it’s the opposite,” he said. “I love my job. I wake up every morning full of ideas I want to get done, I just wish I had another 20 years to keep working in this industry.”
If you look at companies using captives for health insurance and voluntary benefits in the US, and then add in multinational pooling as well as our group captive offering for voluntary benefits there has already been a hockey stick growth curve. So we recognize that has to be a big growth area for us, and the ambitions we have are pretty high.
Performance
Like many firms operating in the captive industry, SRS has benefited in the last few years from the hard market, as interest in captive solutions has boomed.
SRS has been servicing clients with around twice as many captive feasibility studies in the last three years compared to the preceding period, Young said, and as the business expands into new areas he expects the captive management and captive consulting divisions to continue growing at double digit rates.
After forming over 100 new captives last year, SRS managed 491 captives at the end of 2022, writing around $7.2 billion in premium. And Young said SRS is on course to exceed that number of new captive formations this year.
“This has always been a growth engine for us, and I don’t see that stopping,” Young said. “We’re seeing tremendous opportunities, with a lot of captive takeover opportunities, where for one reason or another, owners of mature captives are not happy with the service they’re getting, and we’re getting the opportunity to propose on taking over.”
The company’s growth in captives managed over the last 10 years has been on average 50% through newly created captives and 50% through takeovers, Young said.
But if the market were to soften in the next few years, as is being seen in some lines already, then he thinks the proportion of takeovers might increase.
Lessons learned
But getting the company to the stage it’s at today, estimated to be the fourth largest captive manager in the world by captives managed, has been as much about knowing which clients to turn down, as it is about building an attractive captive management proposition, according to Young.
He freely admits that not every client has worked out as hoped in his over 20 years of leading SRS, but that in this time the company has become more selective to only take on clients that share their same values of thorough compliance, rather than those that seek to cut corners.
“What makes the captive industry unique is that the regulators regulate captives by regulating the managers,” he said.
“And to some extent, to do business in Vermont, or Cayman or Luxembourg, or wherever it is, you have to be approved and meet certain standards to get on their list of approved managers. So, if you get kicked off the list you’re out of business. That makes us in some ways like an extension of the regulators. And the regulators expect us to keep our clients in line.”
Similarly, not every new team member Young has brought into the company has worked out as planned.
Having the right talent is the most important aspect of any business, according to Young, and he thinks that the company has become better and better over the years at attracting and retaining the right talent within the group.
“The people we want in our group are those that are good at what they do, with integrity and good working habits,” he said. “We’ve always tried to treat our people really well. We want to be the employer of choice, so if you’re the best at managing a captive you don’t want to go and work for a broker owned manager, you want to come and work for us.”
“This is a dynamic company that is heading in the right direction. We share the spoils of victory and have built a really strong culture because we want the best people to want to come to work here and stay,” he added.