NU Online News Service, Aug. 13, 4:09 p.m. EDT

BURLINGTON, Vt.--Facing shrinking resources,an uncertain economy, and changing political and regulatorylandscapes, risk managers may be forced to reassess theirparticular captive insurance solutions, a new white papersuggests.

The paper, "Darwinism at Work? How the Current Economy and theMarket Impacts Captives and Risk Managers," was released by ACE atthe Vermont Captive Insurance Association annual conference heldhere.

"It's not a question of whether captives will be around, butmore how they fit into overall expense management and enterpriserisk management strategies," said Carol A. Frey, vice president,ACE Risk Management, who co-authored the report with Linda Kane,senior vice president, ACE Financial Solutions.

According to the report, threats and challenges associated withcaptives for risk managers include:

oThe global recession--Re-evaluation of capitalutilization, management oversight costs, and softening marketcycles may tempt insurance buyers to consider insurance programswith lower retentions, or alternative deductibles and retentions,or non-captive fronting alternatives and risk transferalternatives.

oFinancial crisis fallout and subsequentreforms--Regulatory reforms in the U.S. and abroad willimpact insurance company and captive capitalization requirements.Captives must keep pace with organizational, statutory, or otherexternally-imposed regulations, the paper said

oResources--Risk managers are doing more with less, sothe amount of resources required for captive management andcontrols may be overshadowed by the long-term strategic captivevalue proposition.

Ms. Frey told NU Online News Service that acquisitions have alsoprompted risk managers to question costs and whether they need tomaintain multiple captives that sometimes duplicate coverages.

Risk managers facing such a scenario may need to do a"re-feasibility study," she said, noting that they need todetermine whether to keep multiple captives open, consolidatecaptives, choose the captive that can be the most effective overthe long term, or transfer risks back to an insurer.

Changes in organizations, such as a new chief financial officerwith no knowledge of captives, also can presents challenges. Here,education is required. New management can also trigger a demand fordetailed information on costs associated with the captive, such asmanagement and actuarial fees, Ms. Frey said.

"From the carrier perspective, we're trying to be sensitive towhat the clients are trying to achieve," she said. "We're trying toput options out there for them."

Once an analysis is complete, Ms. Frey said, risk managers mayultimately decide not to make any changes, but the process helpsthem become more aware of options available to them.

While the solutions for the current challenges will be uniquefor each risk manager and the organization's enterprise approach,the study found that captives are clearly able to survive andthrive when they are supported at the highest levels of anorganization--and when the captive is used in a way that providesthe maximum financial and risk management benefits.