How Will the Economic Downturn Affect captives?
by Brian Johnson, ACAS, MAAA, ARM
As the global economy continues its agonizingly slow
crawl back to normal, what are the things we should be considering
when dealing with alternative risk transfer programs?
The first thing that comes to
mind is returns on investments. In general, it's prudent to
forecast rates of return for both cash and investments combined at no
higher than 3 to 4% per year for the foreseeable future, maybe
lower. Of course, we all hope that will be a gross
understatement when we look back in 5 or 10 years. However,
where things stand at the moment, I feel a 3% annual return to be a
rather safe estimate, if not bordering on slightly aggressive.
The market so far this has been inching upward year-to-date. At
the time of this writing, the S&P was up less than 7%, but
captive insurance companies do not invest in the broad stock
market. A quick look at some of the broadly available
bond indices and certificate of deposit rates is much more bleak -
each hovering around 1%.
OK, so investment returns
aren't that great. What else should be a consideration?
The second thing that comes
to mind is the parent company's appetite for buying insurance from
the captive. As the market continues to contract or stay
neutral, the commercial insurance market will most likely continue to
soften, which means commercial insurance rates keep dropping.
It's unlikely that a captive's rates would be able to keep pace with
these commercial rate drops. At some point, the parent company
may ask why it's buying insurance from the captive when it can
purchase the same coverages in the commercial market for less.
One answer lies in all the other reasons for establishing a captive.
Initially setting up a captive is rarely ever only about the cost of
insurance. There are a host of other reasons, such as greater
control when it comes to both underwriting and claims handling,
availability of coverage, access to reinsurance, and potential wealth
transfer advantages. Regardless of these other advantages of
captives, we should all be aware of the increased sensitivity of most
companies to financial and budgetary issues. It's imperative
that we do everything within reason and good judgment to address the
needs of our clients.
Of course, I should also
point out all the positives that are still true for alternative risk
transfer vehicles. A key advantage is availability of
coverage. One of the wonderful things about the ART world is
that a program can be set up to cover practically anything.
This means that niche coverages that are difficult or impossible to
find in the commercial marketplace are obtainable. A second key
advantage is that any money paid to obtain commercially-available
coverage from the captive stays within the "family".
Good experience within a captive program means the parent gets the
benefit of that good experience rather than the insurance company.
So, while there are
definitely some hurdles that can be difficult to overcome in the ART
world which can be attributed to the economic turmoil over the last
couple of years, it certainly behooves us to step back and remember
all the positives that still ring resoundingly true.
from Just Riddles and More
Arrange the ten digits 0 to 9 in
three arithmetical sums, using three of the four operations of
addition, subtraction, multiplication, and division, and using no
signs except the ordinary ones implying those operations. Here
is an example to make it quite clear (note that the example is not
3 + 4 = 7 9 - 8
= 1 5 X 6 = 30
a hint: email@example.com
There is only one thing more painful than
learning from experience and that is not learning from
- Archibald McLeish
For more information about Bartlett
Acturial Group, please visit our web site at www.bartlettactuarialgroup.com.
Bartlett Actuarial Group Celebrates 10th Anniversary
Bartlett, Jocelyn and Matt Lyman celebrating 10th
Anniversary of Bartlett Actuarial Group.
Sixty people attended a party celebrating the 10th
Anniversary of Bartlett Actuarial Group on April 7th at
Betty Jean's in Charleston, SC. The party was held on the
second floor of the century old building on Market Street. Bill
Bartlett made a toast to the next ten years of successful
collaboration with our friends in the captive insurance industry.
Bartlett Actuarial Group Celebrates 10th
Anniversary in Phoenix AZ
Bartlett Actuarial Group celebrated its 10th
Anniversary in Phoenix, AZ on April 21. The party was held on a
private patio at Trader Vic's where Polynesian and Southwestern hors
d' oeuvres were served, insurance stories were shared and the party
lasted into the evening. Again, Bill Bartlett thanked our
friends in the insurance industry for their friendship and support.
10th Anniversary Party to be Held in
Burlington Vermont in the Fall of 2011
We look forward to celebrating with our friends in
Vermont. All are welcome. Details will be announced in
The Big Catch
Mickey and Bill Bartlett with a 20 pound, yard long redfish
caught on 6/8/2011
Ben Mickey, and Bill Bartlett took a break from
actuarial mathematical and statistical studies to explore the inland
streams on the SC coast. This giant redfish was caught by Ben
in the late afternoon as the tide ebbed. This beautiful fish
was released after the picture was taken
CICA -Tucson, AZ
USA Risk - Charlotte,
Mutual Insurance Conference, Jefferson, NC
MCIA - Whitefish, MT
July 12-14, 2011
VCIA - Burlington, VT
August 9 - 11, 2011
RIMS -Raleigh, NC
SCCIA -Charleston, SC
WRCIC (AZCIA, UCIA,
Salt Lake City, UT
September 26-29, 2011
CIC-DC - Washington,
October 24-25, 2011
NCIA - Las Vegas, NV
KCIA - Louisville, KY
November 2-3, 2011
Cayman - Grand Cayman
November 29 - December 1, 2011
Bartlett Actuarial Group, Ltd. is an independent
property and casualty actuarial and risk management consulting firm
offering services to a nationwide clientele. We develop the mathematical
models and analytical tools that help our valued clients quantify,
evaluate, and manage the costs associated with their insurance and risk
4700 E Thomas
Road 137 East 36th St.
19F 145 King
Charleston, SC 29401 Burlington,
85018 917-842-4945 843-377-0993