Captives Cite Reinsurance As Biggest Woe

Scottsdale, Ariz.

Obtaining reinsurance is now the top concern for owners of captive insurance operations, according to the preliminary results of an association survey.

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

Number two on the list of concerns, after reinsurance availability, is obtaining security, such as letters of credit, to bolster a captive's financial standing. Fourth on the list was services provided by fronting companies, the survey found.

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

“The survey would indicate thatpeople are not as unhappy with the [fronting] situationas they have been in the past,” said Michael R. Mead, former chairman of CICA and vice president and director of the Arizona Captive Insurance Association. “That doesn't mean they'rehappy, just not as unhappy as they have been.”

Although there aren't more fronting companies operating than last year, when fronting concerns were high, “those who are still doing 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 using fronting companies. He said whether a captive is required tohire a front to clear local regulatory hurdles is dependent on the line of coverage and state of domicile. For instance, workers' compensation captives in Arizona writing Arizona payrolls don't need a front they can write the coverage directly, he explained.

As far as services goes, Mr. Mead said it's likely that fronting companies have taken seriously complaints that were found inlast year'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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Captives Cite Reinsurance As Biggest Woe

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