domicile within their jurisdictions,
and though “the regulatory environment varies from state-to-state, as
a general rule, most of these states
are quite friendly to captives,”
Bryan added.
Moving a Book of
Business to a Program
The relationship between insurance
carrier and program administrator
brings a number of benefits, Kenny
noted. No insurance carrier possesses
underwriting expertise in every field,
nor does the carrier have the staffing
to write new programs continuously.
The program administrator covers
both of those deficits while bringing
together knowledge from a vast
distribution base – and offering innovative approaches and technologies
that accelerate time-to-market.
“In most cases, program administrators have full capabilities for rating,
quoting, binding, issuing, and
servicing their policies,” Kenny said,
adding that they also may offer loss
control services, premium audit
departments, claims administration
capabilities, and even actuarial
analysis and filing support.
Insurance carriers, naturally, have
a selective appetite for programs.
Broadly speaking, Kenny said,
Zurich seeks single or multi-line
programs of at least $5 million in
annual premium, in underserved
or misunderstood markets, but
with consistent coverage and limits
requirements. Zurich wants to
be able to delegate underwriting
authority to a program administrator
with proven expertise in serving a
homogeneous group or common
industry and the ability to rate,
quote, issue, and service its policies.
Moreover, “if you want to move
a large book of business to a
program, you need a history of data
that demonstrates profitability, an
established distribution network, and
a solid plan to grow the business,”
Kenny added.
Finding a Good Fit for
the Captive Model
Steve Bauman, head of captives for
Zurich Global Corporate in North
America, alternated with Pam Bryan
in providing an overview of the
various types of captive structures
– and identifying what characterizes
a good captive candidate. Generally
speaking, they said, a solid captive
candidate would serve an insured
(or group of insureds) that have
a long-term commitment to the
captive structure, a reasonably
predictable book of business, solid
risk management practices, and
a financially sound balance sheet.
And, they emphasized, captives
are no longer just for the largest
corporations, but today often serve
organizations of various sizes.
Bryan and Bauman offered a quick
overview of various types of captives,
including:
•;The;single-parent;captive,;which
insures its corporate parent and
its subsidiaries and acts as the Risk
Management infrastructure for
the corporation;
•;The;member-owned;group
captive, in which unaffiliated
companies join together to form
a reinsurance company that
typically focuses on traditional
casualty lines – workers comp,
general liability, and auto – and
sometimes other lines such as
property, and in which the insured
shares as risk taker;
•;The;sponsored;captive;(also
known as SPC, segregated cell,
protected cell, separate account
or Series LLC), in which the core
company is owned by one entity,
while cell companies (each with
their own risk, legal segregation,
and protection of assets) are
rented to others;
•;Agency;and;association;captives,
which are organized by an
agency, broker, program administrator, or association that shares
in the underwriting risk of their
customers (or members) placed in
the captive.
Bryan emphasized that captive
insurance companies can serve either
homogenous or heterogeneous
markets – with advantages and
disadvantages in each circumstance.
Homogenous captives can be more
limited in growth potential, since
they serve one industry or group,
but they are easier for the reinsurer
to price appropriately. On the other
hand, heterogeneous captives often
have the potential to grow more
rapidly – but pose greater pricing
challenges for the insurer.
Programs and captives are worth a
closer look for a variety of compelling reasons, according to the
presenters. Programs, in particular,
open up opportunities for profitable
growth in underserved or misunderstood market niches, Kenny said.
And well-managed captives, Bryan
said, have the potential to normalize
insurance industry market cycles for
the parent (or the captive insureds)
while tailoring products and services
to meet the very specific needs of
insureds.
John W. De Witt, an event moderator
and contributing editor for National
Underwriter Property & Casualty,
PropertyCasualty360, and other
insurance industry publications, is
principal and senior consultant for JW
De Witt Business Communications in
New Salem, Mass.
