Orlando, Fla.–Among captive insurers, reinsurance prices have surpassed fronting insurers' costs and operations as a concern, according to a study released by a captive insurers association.

“Not many people appear to be too upset with their lot in life,” said Michael R. Mead, a director of the Captive Insurance Companies Association and chairman of the group's fronting survey.

He noted that, “AIG continues to be the biggest [fronting] carrier, and people seem to think that price and value are reasonable.”

Results of the CICA Fronting/Captive Industry Survey were released yesterday at the CICA conference here.

“Reinsurance is the biggest issue and has surpassed fronting as a concern,” Mr. Mead said.

Richard Turner, managing director of sales for Liberty Mutual Alternative Markets in Conshohocken, Pa., and a member of a panel commenting on the survey results, said: “What I thought was interesting was that reinsurance seems to be a greater concern than fronting. If you drop back, at different points in time, the two were equal, or fronting was more of a problem.”

Mr. Turner added that although some fronting companies of the past are either not in existence or no longer offer fronting services, the major fronting carriers are still the same, and are “getting better and better at it. I think a lot of the companies now have been working hard to do things more efficiently and also more competently.”

He noted that a good thing about captive business is that there is “a real commitment on the part of the captive owners to try to address their insurance needs in a long-term, philosophical approach.”

In many cases, he said, this approach leads to a long-term arrangement where “you get to know each other, you get more efficient. Hopefully, you can reduce your expenses for the client,” which may lead to profitability for both parties, he said.

Mr. Mead, president of M.R. Mead & Company, LLC, a member of the Crusader International Group, said the survey found that 47 percent of those surveyed spent more than $1 million on reinsurance costs in 2005.

The survey found that in 2005, 25 percent spent more than $200,000 on fronting fees, compared with 16 percent in 2004. Also in 2005, 30 percent were not fronted, compared with 34 percent in 2004 and 37 percent in 2003.

More than 40 percent of captives surveyed had been in existence longer than 10 years, 14 percent for six-to-10 years, and 37 percent for one-to-five years.

Among the comments regarding price, one respondent said, “We only buy reinsurance when the cost-benefit analysis is economically positive”

Another reported, “Our price went up because our program got much more complex writing business in several states. We went from an excess program to one of more of a reinsurance nature. We dropped our aggregate coverage.”

The survey found that 61.3 percent of those surveyed found the value of their fronting carrier “reasonable,” 30 percent found it “expensive,” and about 1 percent found it “inexpensive.”

Of those surveyed, 43.5 percent said their reinsurance costs had remained the same since the last renewal, 21 percent said costs increased 6-to-10 percent.

Special Reports /

Reinsurance Rates Concern Captives

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