Hoosier Banker 45 The purchase of additional cyber coverage on the commercial market has skyrocketed, but most do not fully understand what these coverages exclude. A captive can provide a solid backstop for a community bank, stepping in to provide coverage when commercial coverage is denied because of an exclusion. Banks facing margin compression. Banks are facing uncertain times and continue to see their earnings come under pressure. Depending on the structure, captive coverages and claims experience, community banks with captives can experience a 1% to 2% annual average increase to earnings per share. The captives have begun to reimburse their owner/affiliated entities for reasonable expenses that are not covered by its commercial policy. Therefore the extra expenses spent on laptops, software, extra IT work, cleaning due to infected employees and/ or customers entering a branch, temporary barricades in teller lines, etc. are covered by a captive managed by KeyState under Extra Expense and Difference in Conditions policies. Recently, KeyState hosted a virtual educational seminar with 60 community banks with captives from across the country, joining to understand how their captive policies would respond as the pandemic developed. After the session, KeyState surveyed the banks (average asset size between $1 billion and $10 billion) and found that on average, banks estimated $50,000 to $100,000 in extra expenses associated with COVID-19, with some of the larger institutions estimating expenses over $250,000. Although the banks remain disappointed that their commercial insurance does not respond to these losses, they have been thankful to have the captive structure in place to respond to these extra expenses related to the pandemic. Of course, this solution of forming and operating a captive insurance company is not a fit for every bank. This solution should only be implemented by banks with sufficient capital and earnings. Holding companies that want to form a captive must James T. McCoy, 80, board member and former chairman of Jackson County Bank, Seymour, and Bancorp of Southern Indiana, died Aug. 23. He served on the bank board for 47 years, was a founding member of the holding company board since its inception in 1983, and was chairman of both JCB and BSI from 2005 through 2019. McCoy was a member of the Indiana Bankers Association 40 Year Club. HB IN MEMORY OF be well-managed and well-capitalized. We expect to see continued growth in community banks forming captive insurance companies. As banks become more aware of their unfunded risks through ongoing enterprise risk management, a captive offers a unique and customized approach to help identify and fund for those risks on an annual basis. HB There’s lending, and there’s intelligent lending. The tools to succeed in every stage of your lending lifecycle. Learn more at spglobal.com/commercial-lending Copyright © 2020 S&P Global Market Intelligence Inc. All rights reserved. Market Insight & Lead Generation Pricing & Total Relationship Optimization Portfolio & Lender Performance Analysis Credit Surveillance & Portfolio Tracking Credit Analysis & Assessment
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