Hanover Stone Partners
Hanover Stone Partners has launched CaptiveGuard for captive insurance companies and their parent organisations, as CIT finds out
Why was CaptiveGuard formed?
Organisations around the world are expanding their use of captives. Today, growing numbers of captives now write third-party business, fund employee benefit programmes and make intra-company investments. As captives have become increasingly complex, their risk profiles have evolved. They need more robust oversight and governance, as well as continual objective and independent operational review. Hanover CaptiveGuard offers a full complement of resources for captives and their parent organisations. Among our services are: evaluating the captive management company’s performance; actuarial reviews; global and local insurance regulatory compliance; coverage reviews of directly issued policies; facultative and treaty reinsurance agreement reviews, and insurance and reinsurance market security.
What are the key strategies in improving underwriting?
The underwriting discipline for a diversified captive should be no different than the underwriting discipline of a multi-line carrier, including development of actuarially sound rates, close attention to the concentration of values in property risks, emerging legal trends in casualty risks, correlation of risks in the portfolio, policy terms, conditions, extensions, sub-limits and aggregates, and so on.
An analytical review of a captive’s risk portfolio can identify a variety of opportunities to strengthen the captive’s overall performance. For instance, you can improve underwriting profitability by identifying risk segments with favourable experience over time (or that have been improving on a trending basis) where you’ll want to increase the use of the captive. On the other hand, you can also identify marginally profitable areas where it may make sense to purchase more reinsurance, or consider making structural changes, such as increasing retention levels, limiting capacity or adjusting pricing to improve performance.
Why do you think organisations are looking to expand the use of their captives?
Certainly, we’re starting to see signs of an evolving traditional insurance market with some lines experiencing rising premium rates and tightening capacity. Historically, captives have been used to help mitigate against swings in the commercial insurance market cycle. Of course, controlled business is profitable business if underwritten and priced properly. In many instances, captives also have emerged as significant profit centers for many organisations. As their strategic plans call for expanding company activities, there may be opportunities to increase the use of the captive as well. Captives also enable organisations to formally pre-fund exposures that are consciously self-insured and insulate companies from volatile earning fluctuations and cash flow demands.
Were there any regulations that you had in mind when setting up CaptiveGuard?
In step with their globalisation initiatives, businesses have generally sharpened their focus on compliance, and in the risk management area with respect to global corporate insurance compliance. Increased insurance regulation in countries in all parts of the world applies as well to captives as they write policies for their parents and sister companies, as well as third-party business. In the US, emerging regulations under the US Dodd-Frank Act may have an impact on captive insurance companies.
New Dodd-Frank rules regarding swaps provide a limited insurance safe harbour and have implications for cat bonds, sidecars, industry loss warranties and other insurance-linked securities. The US Commodity Futures Trading Commission and US SEC have adopted new rules that become effective on 12 October 2012.
Captives that are interested in writing employee benefits in the US face additional regulatory measures from the US Department of Labor. The inclusion of international benefits further complicates the process. In addition, an increased number of captive domiciles in all parts of the world are subject to evolving regulatory frameworks that require monitoring to help affected businesses remain compliant.
Where are the captive insurance companies that you will be assisting based, and what are their lines of business?
Hanover Stone Partners has an extensive team of senior risk advisors with vast experience in establishing, managing, and operating captives in all parts of the world. Many of them also have served on boards of captives and large commercial insurance companies. As a result, Hanover CaptiveGuard is well-positioned to deliver service to captives and their parent firms on a global scale and across all lines of coverage.
How do you feel the US captive sector compares to offshore domiciles such as the Cayman Islands?
Each domicile has its own unique advantages and any business needs to consider a variety of factors in determining the optimal domicile for its captive. That said, US businesses that domicile captives onshore have access to US Terrorism Risk Insurance Act coverage, pay no federal excise tax, have the ability to loan back proceeds to the parent company, and can add employee benefits to their captive portfolios with Department of Labor approval. Meanwhile, offshore captives may have lower capitalisation requirements, which make it easier financially to establish a new captive, as well as benefits for specific industry sectors.
How did your partnership with Blackburn Group for its launch of RiskPro Health come about, and how is the group progressing?
One of Hanover Stone Partners’s senior risk advisors had a favourable experience working with Blackburn Group and introduced us. They have powerful analytical, benchmarking and implementation capabilities that apply specifically to self-insured healthcare and casualty programmes. For example, they consistently have achieved cost reductions of 15 percent to 40 percent for clients with respect to their chronic and legacy claims. We view them as a valuable partner firm that has much to offer clients of Hanover Stone Partners and Hanover CaptiveGuard.
