Wilmington Trust Corp. entered the insurance market for the first time last week; the Delaware wealth manager signed a definitive agreement to buy a South Carolina captive-insurance management company.
William J. Farrell 2d, an executive vice president and head of Wilmington Trust's corporate client services business, said the company wants to buy Charleston Captive Management Co. so it can offer more products to its institutional customers.
"Captive-insurance management is a good fit with the customers we have and the opportunities we see in offering some insurance products," Mr. Farrell said. "This business is a great fit and offers us a lot of opportunities going forward."
Charleston Captive Management offers administrative services such as bookkeeping and regulatory reporting that support the establishment and operation of captive insurance companies, which are owned by those they insure.
Mr. Farrell said Wilmington Trust has no immediate plan for further deals to get deeper into the insurance business. It does not want to be an underwriter, for example, he said, but the South Carolina deal gives his company opportunities to cross-sell.
"This is a good opportunity to leverage our existing infrastructure and our existing clients," he said. "This is a growing business, and there is a real growth opportunity with this business."
"This acquisition is an indication of our commitment to our institutional customers rather than an experiment into insurance," he added.
Analysts called the deal a good way for Wilmington Trust to take its first step into insurance.
"Wilmington has a different client base, a wealthier client base, than many competitors," said Burton Greenwald, a Philadelphia analyst at BJ Greenwald Associates. "They can't just offer annuities here. They have to find products that fit with the clients they have and determine how and if they work."
Mr. Farrell said captive insurance is really an extension of services Wilmington Trust already gives its corporate clients. He estimated that 40% of U.S. corporations own one or more captive insurers. "That is a large opportunity right there to cross-sell this service to our clients," he said.
The purchase would broaden the offerings of the corporate client services business he runs, Mr. Farrell said, and increase the fee-based revenue from these customers.
Captive insurers are regulated and must be licensed because they bear risk. They usually are formed by companies that wish to better manage the cost and administration of their insurance coverage.
Mr. Farrell said the largest providers of captive insurance management are the big insurance companies themselves. "This is a good play for an independent company to enter this field," he said.
Charleston Captive Management, which was founded in 2001, was the first such company in South Carolina, which has since become a leading U.S. jurisdiction for captive insurers.
Popular jurisdictions for captives outside the United States are Bermuda, the Cayman Islands, and Ireland.
"Captive insurance management is a logical extension of our existing entity management capabilities," Mr. Farrell said. "We already operate in many of the captive industry's key jurisdictions, and we have the necessary infrastructure to effectively leverage the strengths of both organizations."
Charleston Captive Management's staff is to remain with the company, but its revenue and services will be consolidated with those of Wilmington Trust. The South Carolina company is to be rebranded Wilmington Trust Captive Management Services once the deal closes, which is expected in the third quarter.
The deal's terms were not disclosed.
