Captives Cite Reinsurance As Biggest Woe

Scottsdale, Ariz.

Obtaining reinsurance is now the top concern for owners ofcaptive insurance operations, according to the preliminary resultsof an association survey.

The Captive Insurance Companies Association also found that theavailability of fronting firms, formerly the number one worry forcaptives, plummeted to number three on the list. This is the firsttime in the four years the survey has been conducted that frontinghas dropped from first place.

Number two on the list of concerns, after reinsuranceavailability, is obtaining security, such as letters of credit, tobolster a captive's financial standing. Fourth on the list wasservices provided by fronting companies, the survey found.

The survey of 133 captive owners was released at CICA's annualmeeting here.

“The survey would indicate thatpeople are not as unhappy withthe [fronting] situationas they have been in the past,” saidMichael R. Mead, former chairman of CICA and vice president anddirector of the Arizona Captive Insurance Association. “Thatdoesn't mean they'rehappy, just not as unhappy as they havebeen.”

Although there aren't more fronting companies operating thanlast year, when fronting concerns were high, “those who are stilldoing it are apparently doing a pretty good job,” he said.

Mr. Mead also told National Underwriter that, in part,the results reflect the reality that fewer captives are usingfronting companies. He said whether a captive is required tohire afront to clear local regulatory hurdles is dependent on the line ofcoverage and state of domicile. For instance, workers' compensationcaptives in Arizona writing Arizona payrolls don't need a frontthey can write the coverage directly, he explained.

As far as services goes, Mr. Mead said it's likely that frontingcompanies have taken seriously complaints that were found inlastyear's survey and made appropriate changes to appease clients.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, March 19, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.