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2017 Vermont Report

A Perfect Fit

Life Time Fitness finds a captive home in Vermont.
By: | April 7, 2017 • 7 min read

Vermont, known for its natural landscape and ski resorts, is also the domicile for a new captive insurance company for Life Time Fitness, Inc., a privately held, multi-billion-dollar healthy living, healthy aging and healthy entertainment lifestyle company based in Chanhassen, Minn.

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“Life Time is a 25-year-old Healthy Way of Life company committed to helping communities organizations and individuals achieve their total health objectives, fitness goals and athletic aspirations  by providing the best places, best performers and best programs that positively change lives every day.

“Beginning with our first club in 1992, we have grown to more than 120 destinations in 35 major markets  across 26 states and Canada, serving more than 1.8 million members,” said Josh Reding, Life Time director of risk management.

“In keeping with our growth, our financial protection and insurance needs have also evolved. With this in mind, we licensed our captive in January of 2017 and funded it in February.”

Life Time’s comprehensive, multi-purpose, resort-like destinations provide entertaining, educational, friendly, functional and innovative experiences that meet the health and fitness needs of the entire family, according to the company.

Over the last 25 years, the company has transformed the health and fitness space, while creating an entirely new industry — Healthy Way of Life. Today, Life Time is poised to further extend its brand and growth with the creation of dozens of new, iconic Life Time destinations, complete with comprehensive Healthy Living, Healthy Aging and Healthy Entertainment programs, services and products, it said.

“Like so many captive programs, the insurance coverage that Life Time Captive Insurance Co. provides to its parent organization is plain vanilla, but the parent is unique,” said David Provost, deputy commissioner of captive insurance, Vermont’s top regulator.

“It was a great fit for Life Time Fitness to form their captive in Vermont — not just because the captive program was right up our alley, but because we have a fitness culture here too,” — David Provost, deputy commissioner of captive insurance, State of Vermont

“It was a great fit for Life Time Fitness to form their captive in Vermont — not just because the captive program was right up our alley, but because we have a fitness culture here too,” he said.

“Vermont ranks as the second-fittest state in the nation, and the Department of Financial Regulation staff exemplifies that ethos. We have bikers, skiers, kayakers, hikers, climbers, marathoners and more on staff, and may be the only insurance department in the country that has put up teams for challenge runs, obstacle races and Penguin Plunges.”

Create a Short List

Given its characteristics, third-party liability, property and casualty are major portions of Life Time’s insurance program.

So is getting educated about risk.

James Swanke, director of risk consulting at Willis Towers Watson, said risk managers should attend RIMS or CICA conferences as well as “talk to the regulators from various domiciles as a first step to learn as much as they can and determine which they like better in terms of captive legislation, regulation and infrastructure.”

“The goal should be to create a short list of attractive captive domiciles. We can certainly provide our point of view as consultants, but it has to be a comfortable fit for the client.”

After research, it’s time for a formal captive feasibility study including actuarial projections, financial analyses and cost-benefit comparisons. In Life Time’s case, company officials admitted to feeling as if they were being overly cautious in the years it took to collect information about various domiciles and put their internal processes in place. But Swanke said the firm took the right amount of time to prepare.

Dan Towle, former director of financial services, State of Vermont

“There are more choices than ever when it comes to domicile selection and competition can be fierce,” said Dan Towle, outgoing director of financial services for the State of Vermont.

“The bottom line is that companies want to form their captives in a predictable, stable, efficient and business-friendly environment. Other jurisdictions can copy our laws, but having our experience, knowledge, infrastructure and a 36-year track record is not easily duplicated.”

That is attractive to first-time captives.

“I joined Life Time six years ago and report to our executive vice president and chief administration officer, who is knowledgeable in risk financing and has always had an appreciation for risk management,” said Reding.

“We have been evaluating the idea of a captive since 2011 and knew it needed to be a long-term program with a solid plan to transfer risk outside of the traditional markets, especially workers’ compensation and third-party liability.

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“The hiring of our Risk & Safety Manager Ashley Fitzner in 2013, was a final piece to our plan for captive preparation. She has brought the needed consistency to our risk reduction programs across all of our destinations in preparation of the captive launch.”

Life Time primarily considered Vermont, Bermuda, and the Cayman Islands for domiciles, but also considered Washington D.C., Arizona (one of the many areas that Life Time has a high concentration of destinations), and even Hawaii.

The decision was narrowed down to Vermont and Cayman, and Life Time selected the leading onshore captive insurance domicile, “because of its reputation in the captive insurance industry for expertise, consistency and a solid infrastructure,”Reding said.

Growth Strategy

While many firms establish captives mainly to gain leverage in the commercial market, Life Time has more ambitious plans.

“What’s important to us is providing our members with unparalleled experiences and value so that they choose to remain at Life Time for the long term,” Reding said.

“Unlike most typical fitness facilities that merely offer roomfuls of equipment without programs and essentially, are non-use models, we always have embraced the concept of Member Point of View (MPV), by building and operating destinations our members want to be in versus places they feel they have to be. We have considered many enhancements beyond our current offerings, and continue looking at the captive as a potential tool to provide additional benefits to members someday.”

“We are being selective about which risks we’re transferring into the captive. We have embraced a crawl-walk-run approach; but the captive will allow us to accelerate our objectives by utilizing our resources to invest in ourselves.” —  Josh Reding, Life Time director of risk management.

This is not to say that Life Time is not seeking financial benefits from the captive formation in the near term. “Our first premium was not significantly different from that which we paid in the commercial market,” said Reding. “One of the objectives is to turn reduced premiums and losses into a surplus.

“We are being selective about which risks we’re transferring into the captive. We have embraced a crawl-walk-run approach; but the captive will allow us to accelerate our objectives by utilizing our resources to invest in ourselves.”

The captive will approach the reinsurance market for the first time this fall. As Life Time continues to enhance its safety program, Reding and Fitzner plan for a portion of future funds to support loss prevention needs.

Josh Reding, director of risk management and Ashley Fitzner, risk & safety manager

Reding said his company selected Vermont “knowing the flexibility of the regulatory framework as an onshore domicile — and by that I don’t mean lax. The onshore domicile allows us to achieve our long-term objectives without as many regulatory roadblocks as an offshore domicile.

“The staff at the Vermont Captive Insurance Division was patient and persistent while we completed our study, and they moved quickly when we were ready to complete the formation of the captive.”

Swanke said that for the most part, “captive domicile laws are comparable state to state but there can be some important differences.” Meeting with potential finalists is important, he said.

“Captive regulators hear about the client’s business plan and vision, and the client hears the regulator’s views on the domicile’s captive law, infrastructure and so forth. There has to be a meeting of the minds, so it is important to sit down together.

“In most cases one domicile stands out as a clear winner after all the visits.”

Swanke said he was not surprised that Life Time chose Vermont. “Vermont is among the oldest and largest captive domiciles. They have significant infrastructure dating back to July 1981. New states will enter the scene as captive domiciles with their bells and whistles, and those often attract local companies that want to do business in state or close to home. There is a lot of competition among domiciles.”

One trend in captives, he added, is captive owners moving non-traditional risks into their captives beyond the standard risks of general liability, auto, workers’ compensation and property.

“We are seeing a lot of interest in cyber, also wage-and-hour, which is related to employment practices liability,” Swanke said. “Certain domiciles will be more comfortable with these newly emerging risks, which will foster further competition across the domiciles.”

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While Life Time does not yet operate one of its healthy-way-of life destinations in Vermont, it appreciates the healthy lifestyle living the Green Mountain State provides, and is excited to partner with their captive offerings in the years ahead. &

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2017 Vermont Report

 

Vermont Eyes Agency Captive

An agricultural consortium is one group taking a serious look at forming an agency captive in Vermont.

Eight Questions for Dan Towle  

Risk & Insurance® speaks with Dan Towle as he departs from his long tenure as director of financial services for the State of Vermont.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]