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Lifespan and its Subsidiaries Insured Offshore

Monday, April 08, 2013

 

Lifespan Corporation and its subsidiaries are insured by a self-owned foreign insurer domiciled offshore in Hamilton, Bermuda.

Lifespan Corporation, who recently announced financial difficulties and pending cost reductions, is insuring itself through an offshore insurer. The number one provider of medical services in Rhode Island, encompassing several major facilities and employing more than 12,000 physicians, nurses, healthcare workers and support staff owns the foreign company responsible for insuring its facilities and workforce.

Lifespan insurer is an island corporation.

The private non-profit organization is currently self-insured by R.I. Sound Enterprises Insurance Co. Ltd. (RISE), a for-profit organization domiciled in Hamilton, Bermuda. Formed in 1990, RISE is entirely owned by Lifespan and because of its proprietary ownership, considered a captive insurance company.

RISE covers the professional medical malpractice liability and general liability risk for the Lifespan system, its employees and physician groups. The malpractice plan (LMP) covers Lifespan’s directors, officers, Lifespan subsidiaries, entities and their employees. It not only provides insurance coverage to all entities within the Lifespan system but also extends to all its eligible physician groups.

Lifespan Risk Services (LRS), also a for-profit organization is a Rhode Island corporation that handles the underwriting for the LMP. The insureds covered under the RISE policy and listed with LRS include The Miriam Hospital, Rhode Island Hospital, Lifespan, Newport Hospital, VNA and all affiliate programs. RISE is also listed as insured under the RISE policy.

What is a captive and why insure offshore?

According to the National Association of Insurance Commissioners (NAIC), captives are created by non-insurance companies to insure their own risks and cover a wide range including all those covered by licensed commercial insurers. Domestic captives are monitored and regulated by state and federal insurance regulatory standards, policies and procedures.

Lifespan’s RISE is considered a foreign insurer and is not subject to the same oversight. Foreign captives, whose owners are domiciled in Rhode Island, are not overseen by the Department of Business Regulation (DBR) in the same manner as domestic insurers.

“The disclosure requirements for captives are different,” said Jack Broccoli, Chief Insurance Examiner at DBR. “The disclosure is not as comprehensive and the transparency is not as comprehensive with captives. Lifespan’s captive is regulated by Bermuda standards. We receive an actuarial report and they have an independent audit. We can look at the documents we receive - the transactions and risk factor, but we don’t have authority over the captive or its investments.”

Actuarial and financial reporting is limited.

Although RISE is held offshore, its actuarial reporting is prepared by Towers Watson of Connecticut. Information contained in the report states that the findings are “materially influenced by the rate of return [selected] by RISE” and not the actuary based per the April 17, 2012 report. The report also notes that the actuary conducted no examination of RISE’s assets and assumed that RISE’s loss reserves were backed by valid assets. All financial information supplied to the actuary is provided by an outside source or RISE and its accuracy assumed. 

Financials submitted to DBR in April 2012, by KPMG of Bermuda, exposed a significant downward spiral, with 2011 year-end cash equivalents at $4,697, decreased from $1,875,000 in 2010. Total income decreased, expenses climbed and comprehensive (loss) income fell into the red zone.

Lifespan is not alone.

Lifespan is joined by Women and Infant’s Hospital and Kent County Hospital, and their affiliates, who also self-insure through offshore captives.

Women and Infant’s captive, W&I Indemnity, Ltd is located in the Cayman Island’s as is Tollgate Idemnity, Ltd. All three entities have actuarials prepared by Towers Watson, although the Cayman companies use a separate independent financial auditor.

Where is the safety net?

The limited scope of regulatory authority over foreign captives is a concern due to limited scope of information reported and lack of enforcement ability over the organizations practices.

“There is no safety net,” said Steven R. DeToy, Director of Government Relations for the Rhode Island Medical Society. “There is no enforcement power and no safety net in place over these foreign captives. They can’t ensure solvency. It’s totally unregulated.”

For a list of all Lifespan entities insured under the RISE policy, click here.
 

 

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