Captive of the Week — TSI Insurance Inc. and the Role of Captives under PRIA
Town Sports International’s struggles under COVID-19 lockdown orders offers a telling view into how large corporations could use captive insurance companies to shift complex business risks through the Pandemic Risk Insurance Act.
Town Sports International is a gym and fitness company operating under several brands including The New York Sports Clubs and Lucille Roberts. Less than three weeks ago 162 Town Sports International affiliates filed for bankruptcy protection as COVID-19 dealt a tremendous blow to operations.
Town Sports International formed TSI insurance, Inc. just three weeks after the Terrorism Risk Insurance Act became law. By 2016, TSI Insurance took in close to $10 million per year in premium for a range of property and casualty insurance policies sold to its one customer — Town Sports International. Those policies included at least $200 million of terrorism coverage.
The attached 5 minute video explains how Town Sports International uses TSI Insurance to shift risk through the Terrorism Risk Insurance Program while creating a $221 million exposure for small businesses, churches, school districts and other commercial policyholders.
The video also considers how large corporations like TSI could use the proposed Pandemic Risk Insurance Act to similarly move hundreds of millions or even billions of dollars in complex pandemic business interruption losses onto the U.S. taxpayer.
The terms of each company’s pandemic payout would not be negotiated by Congress, Treasury, or anyone else responsible to the American taxpayer. Instead, PRIA (like TRIA) would allow the corporate parent’s senior executives to run both sides of the company’s bailout negotiation. Naturally, we should expect these executives will negotiate with themselves for exotic business interruption coverages, massive limits, and tiny premiums.
Index of Publications from the Center for Terrorism Risk
