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THE ALTERNATIVE INSURANCE MARKETPLACE The reason for the failure of Insurance
Company’s being able to fill the needs of insurance buyers is generally
because there is a “lack of imagination”, and the inability to think
outside the normal Insurance BOX. For
non-traditional risk exposures, an organization cannot ask, “should I be
involved”, but rather, “if I do not get involved, who will”? The issue is one of how to finance risk. There has been a change over the years from
“how to buy cheap insurance and reinsurance”, as it has been in the soft
market, to “HOW TO BEST UTILIZE the Insurance Companies capital and the Trade
Industry or buyer/insured(s) capital, to finance and transfer risks? The most viable option is to combine the
resources of the Insurance Buyer, using a “CAPTIVE STRUCTURE” as the
interface, and contract with an Insurer to provide reinsurance for the
captive. In that way, the Insured
takes charge of the policy coverage(s), rating, and claims Administration. The Insurance marketplace is
driven ultimately by Reinsurance.
Recent events, i.e., Asbestos claims, Toxic Mold claims, and
Catastrophe losses (including Enron) are being compounded by LOW Investment
returns. This creates a problem for
all Buyers, even though the claims are unrelated to their business. The underwriting and investment return model of today, reveals that the COMBINED RATIO needed to earn a 12% percent after tax return, assuming investment returns of between 4% and 8% percent, identifies that the combined loss ratio, based on a 2 to 1 premium to surplus ratio, needs to be below 95% percent. The Insurance industry justifies
“cash flow underwriting” in certain and specific investment climates, because
the more premiums written versus the policyholder surplus of the
company, the higher the permissible combined ratio makes economic sense. CLICK TO: ◘ The Captive as an
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