TUCSON, ARIZ.–The primary concern of captive insurers is securing reinsurance, according to a survey released today at the annual conference of the Captive Insurance Companies Association (CICA).
Reinsurance replaced securing companies to serve as fronts, which had been the top item of interest for captives over the past few years.
Michael R. Mead, who helps conduct the survey, said: "Reinsurance was clearly a concern. It showed up on more radar screens than previously–and last year it was big, but it was more diverse this year."
He added that "collateral seemed to be going up. Policy language was tightened; autonomy was more restricted. These things were higher than last year."
Mr. Mead explained that although reinsurance was the biggest concern last year, this year overall concern for reinsurance was down, but "in the subcategories it was higher. So while it wasn't as deep a concern, it was a broader concern."
He noted that fronting has dropped as an overall concern in the past few years because it "seems to have stabilized; people were having trouble finding fronts," he said. Survey results also show that carriers that are doing fronting are doing a better job at it, "and there are a big chunk of people who are not buying fronting," Mr. Mead surmised.
Sixty-one percent of respondents said they spend more than $1 million on reinsurance, while 48 percent spent more than $1 million in 2005. Forty-five percent spent 20 percent of annual premium on reinsurance in 2006, versus 35 percent last year.
Carrie Hayward, with Johnson & Lambert, reported that of 143 respondents–last year 93 responded–61 percent were single-parent captives and 78 percent were domiciled in the United States. She said 11 percent of respondents were association captives, 15 percent were risk retention groups and 11 percent were segregated cell captives.
The survey found that 44 percent of respondents had fronting costs that were 5 percent of annual premium; 37 percent reported fronting costs at 6-10 percent of annual premium. Some respondents spent less on fronting in 2006–19 percent spent more than $200,000 in 2006, while 25 percent spent that amount in 2005. But more spent over $1 million–17 percent last year, versus 10 percent in 2005, CICA said.
Forty-one percent of those surveyed reported admitted paper as their primary reason for using a fronting carrier, while 29 percent reported regulatory compliance; 9 percent reported support services; 8 percent reported a global strategy; 5 percent reported marketing; 4 percent reported an enhanced tax position; and 4 percent cited "other" reasons, according to CICA.
Mr. Mead said a goal of CICA is to get more cooperation from state associations to get the word out to captive owners about the survey. The Vermont Captive Insurance Association (VCIA) and the Arizona Captive Insurance Association were instrumental in contacting members. "We just need to get more responses and get more state associations to work with us."
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