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.


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           Group Captive/RRG                                                                            

              The Captive as an Alternative