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ACI’s 3rd Advanced Forum on Captive Insurance

Brian Johnson

Managing Principal Bartlett Actuarial GroupPhone: (843) 377-0993brianj@bartlettactuarialgroup.com

State of the Captive Insurance MarketState of the Captive Insurance MarketFor Middle Market CompaniesFor Middle Market Companies

Tom Stewart

President

Innovative Captive Strategies

Phone: (515) 223-6852

tstewart@yourcaptive.com

Jeffrey K. Simpson

Director

Gordon, Fournaris & Mammarella, P.A.

Phone: (302) 652-2900

jsimpson@gfmlaw.com

April 23-24, 2015April 23-24, 2015

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State of the Captive Market

The needs of the small/middle market, the latest in coverage, claims and

underwriting, and a look ahead at some of the novel risks that aren’t insured and

that can potentially be funded by a captive.

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State of the Captive Market

• Fairly Soft Market

• Some Market Swings for Certain Classes

• Lack of Availability of Self-Insurance Options

• Strong Performers not Rewarded

• Captive Interest is Strong 3

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State of MarketMiddle Market Captive ActivityGoals

Reduce Cost of Insurance

Cover Risks Not Typically Insured

Medical Stop-Loss

Unique Arrangements

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State of MarketMiddle Market Captive ActivityGoals Structure

Reduce Cost of Insurance Member-Owned GroupRisk Retention Group

Cover Risks Not Typically Covered Enterprise Risk Captive-Pure-Protected Cell-Series LLC

Medical Stop Loss Member Owned GroupSponsored Vehicle

Unique Arrangements Rental CaptiveAgency CaptiveAssociation Captive

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State of MarketMiddle Market Captive ActivityGoals Structure Risks

Reduce Cost of Insurance

Member-Owned GroupRisk Retention Group

AL, GL, WCProfessional Liability, Specialty liability

Cover Risks Not Typically Covered

Enterprise Risk Captive-Pure-Protected Cell-Series LLC

Deductible & ExclusionBusiness InterruptionLoss of Income

Medical Stop Loss Member Owned GroupSponsored Vehicle

Employer funding obligations to self-insured plan

Unique Arrangements Rental CaptiveAgency CaptiveAssociation Captive

Business or industry specialty exposures

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Number of Captives Worldwide

84% Single Parent

8% Group Captives

4% Risk Retention Group

3% Protected Cell

1% Other

Source: Captive Insurance Company directory, through calendar year 2013

May 2013 (Marsh Risk Management)

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Ideal Candidate• Entrepreneurial Spirit

• Desire to Take Control

• Commitment to Loss Control and Safety Improvement

• Financially Secure8

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Needs of the Market

• What problems have middle market captive owners historically been trying to solve?• Reduce Cost• Pricing Stability• Increased Control• Quality of Service• Fund uninsured exposures• Manage unique business on industry - related exposures

• What problems are emerging for the middle-market that a captive could solve? 9

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The Latest in Coverages, Claims and Underwriting

• Coverages• Traditional insurance coverages• Ability to increase retentions• Excess coverages• Difference in Conditions coverage

• Enterprise Risk Management Coverages• Low frequency / high severity• Generally unavailable in commercial market• Examples: Cyber Liability, Supply Chain Interruption

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The Latest in Coverages, Claims and Underwriting

• Claims• ERM claims occurring more frequently• Awareness• True emergence of unknown risks• The establishment of insurance companies specifically

designed to cover these risks is raising awareness of these risks

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The Latest in Coverages, Claims and Underwriting

• Underwriting• Models have been developed to quantify the risk• Every occurrence becomes a new data point• Data can be gathered from numerous sources, but

not yet one centralized repository

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• Influence of ERM on middle-market underwriting risk identification and coverage decisions

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Novel Risks That Aren’t Insured and that Can Potentially Be Funded by a

Captive• Cyber Liability• Supplier/Supply Chain Interruption• Reputational Risk• Contingent Business Interruption• Business Interruption from outside, uncontrollable sources

• Loss of Key Employees or Key Customers• Deductibles/Excess/Difference in Conditions

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•Cultural shift to cover these exposures and make claims. Business processes not currently built for it.

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•Everyone starting to adjust for experience

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Questions and Answers

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