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

Pinnacle Entertainment’s VP of enterprise risk management says he’s inspired by Disney’s approach to risk management.
By: | November 1, 2017 • 4 min read

R&I: What was your first job?

Bus boy at a fine dining restaurant.

R&I: How did you come to work in this industry?

I sent a résumé to Harrah’s Entertainment on a whim. It took over 30 hours of interviewing to get that job, but it was well worth it.

R&I: If the world has a modern hero, who is it and why?

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The Chinese citizen (never positively identified) who stood in front of a column of tanks in Tiananmen Square on June 5, 1989. That kind of courage is undeniable, and that image is unforgettable. I hope we can all be that passionate about something at least once in our lives.

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

Cyber risk, but more narrowly, cyber-extortion. I think state sponsored bad actors are getting more and more sophisticated, and the risk is that they find a way to control entire systems.

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

Training and breaking horses. When I was in high school, I worked on a lot of farms. I did everything from building fences to putting up hay. It was during this time that I found I had a knack for horses. They would tolerate me getting real close, so it was natural I started working more and more with them.

Eventually, I was putting a saddle on a few and before I knew it I was in that saddle riding a horse that had never been ridden before.

I admit I had some nervous moments, but I was never thrown off. It taught me that developing genuine trust early is very important and is needed by all involved. Nothing of any real value happens without it.

R&I: What about this work do you find the most fulfilling or rewarding?

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Setting very aggressive goals and then meeting and exceeding those goals with a team. Sharing team victories is the ultimate reward.

R&I: What is the most unusual/interesting place you have ever visited?

Disney World. The sheer size of the place is awe inspiring. And everything works like a finely tuned clock.

There is a reason that hospitality companies send their people there to be trained on guest service. Disney World does it better than anyone else.

As a hospitality executive, I always learn something new whenever I am there.

James Cunningham, vice president, enterprise risk management, Pinnacle Entertainment, Inc.

The risks that Disney World faces are very similar to mine — on a much larger scale. They are complex and across the board. From liability for the millions of people they host as their guests each year, to the physical location of the park, to their vendor partnerships; their approach to risk management has been and continues to be innovative and a model that I learn from and I think there are lessons there for everybody.

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

We are doing a much better job of getting involved in a meaningful way in our daily operations and demonstrating genuine value to our organizations.

R&I: What could the risk management community be doing a better job of?

Educating and promoting the career with young people.

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

Being able to tell the Pinnacle story. It’s a great one and it wasn’t being told. I believe that the insurance markets now understand who we are and what we stand for.

R&I: Who is your mentor and why?

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John Matthews, who is now retired, formerly with Aon and Caesar’s Palace. John is an exceptional leader who demonstrated the value of putting a top-shelf team together and then letting them do their best work. I model my management style after him.

R&I: What is your favorite book or movie?

I read mostly biographies and autobiographies. I like to read how successful people became successful by overcoming their own obstacles. Jay Leno, Jack Welch, Bill Harrah, etc. I also enjoyed the book and movie “Money Ball.”

R&I: What is your favorite drink?

Ice water when it’s hot, coffee when it’s cold, and an adult beverage when it’s called for.

R&I: What does your family think you do?

In my family, I’m the “Safety Geek.”

R&I:  What’s your favorite restaurant?

Vegas is a world-class restaurant town. No matter what you are hungry for, you can find it here. I have a few favorites that are my “go-to’s,” depending on the mood and who I am with.

If you’re in town, you should try to have at least one meal off the strip. For that, I would suggest you get reservations (you’ll need them) at Herbs and Rye. It’s a great little restaurant that is always lively. The food is tremendous, and the service is always on point. They make hand-crafted cocktails that are amazing.

My favorite Mexican restaurant is Lindo Michoacan. There are three in town, and I prefer the one in Henderson as it has the best view of the valley. For seafood, you can never go wrong with Joe’s in Caesar’s Palace.




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