EVOLUTION IN GROUP CAPTIVES

Transcription

1 EVOLUTION IN GROUP CAPTIVES DCIA Fall Forum November 11-12, 2015 Chase Center on the Riverfront Wilmington, DE Jeffrey K. Simpson Gordon, Fournaris & Mammarella, P.A Lovering Avenue Wilmington, DE Carol Frey Great American Insurance Group 5 Waterside Crossing Windsor, CT cfrey@gaig.com

2 Outline I. Captive options for small companies II. Group captives III. Enterprise risk captives IV. Linking groups and ERCs V. Discussion 2

3 Captive Options For Small To Mid-Size Companies Group Traditional Risk Retention Group Medical Stop-Loss Enterprise Risk Captive 3

4 What is a Group Captive A group captive is an insurance company owned by its participating companies/insureds. Homogeneous Heterogeneous Group captives can be designed on an exclusive producer basis or a broad agency distribution model. Often, there is a captive consultant engaged to manage the complexity of the program, captive management, board planning and communication. 4

5 Why use a Group Captive? C-O-N-T-R-O-L Premium is based upon loss experience Improved purchasing power Opportunity for underwriting profit Cash flow investment income Forecastable Premium Budgeting Ability to Unbundle for expertise Shared experiences build awareness & proactive behavior Best Practices developed by the group for the group 5

6 Group Captive Classic Features $250k minimum retention $350k casualty premiums XOL with stop loss aggregate Assessments (dependent on risk sharing triggers) Third Party Claims TPA & Independent LP Services General LP Benchmarking Scorecards Trust or Captive Asset Manager (size dependent) 6

7 Evolution In Group Captives $200k+ casualty premium/per insured Quota-sharing Cells vs wholly-owned Onshore vs offshore Controlling agency vs consultants Bundled captive management Targeted LP Technology to empower employees with safety 7

8 Group Captive: Trends Additional RISKS under consideration: Additional Buffer or Corridor Layers of Risk Terrorism Cyber Environmental/Pollution Remediation Medical Stop Loss General trends: Start up s are growing Intimacy of membership (smaller # of insureds) Increased regional brokers designing exclusive group options 8

9 What Is An Enterprise Risk Captive Privately held business Uninsured risk Not typically in commercial program Inefficient/expensive Unavailable Emerging Deductibles and exclusions Severity vs frequency 831(b) election Ancillary planning benefits 9

10 Why Do Businesses Use ERCs? Avoid catastrophe Pre-fund for major disruption Small company business continuity plan Control Purchasing leverage Underwriting profit Augment Commercial Program Fill gaps Manage limits 10

11 Natural Connection: ERC and Groups Same privately held middle market constituency Group-like reinsurance in ERCs Complementary risk management objectives 11

12 ERC: Group-Like Pooling Similarities Is Modern ERC Pool really a group captive? Risk distribution and shifting Fairness and equity issues Risk sharing formula Collateral Subsidizing others Claims Procedures Multiple unrelated participants Differences No ownership Joint & Several (group) Breadth of Coverage Severity vs Frequency risk Size of Retention Risk Sharing Triggers 12

13 ERC As Reinsurer of Group Insured 1 ERC 1 Insured 2 Insurance GROUP Reinsurance ERC 2 Insured 3 ERC 3 Connects group participation and related ERC program Can add third party risk to ERC Already vetted participants Predictable layer Can increase group capacity Bigger impact on commercial savings More power in group program 13

14 Best Of Both Worlds Group ERC Holistic view for P&C (and more?) Frequency Insurance Cost Management Severity Catastrophe Funding Financial Projection Financial Planning 14

15 Best Of Both Worlds Benefits Group Opportunity for increased capacity Opportunity for new coverages Larger retentions for predictable experience/credibility Profit not otherwise achievable with smaller premiums ERC New source of risk diversification New source of premium Funding for severity Business Integrated risk management program More risks covered Long term approach to insurance 15

16 Questions and Answers 16