ROI not the best way to measure captive performance

Return on investment is not the most important measure of success for a captive, according to Andrew Baillie, program director for global insurance at AES Global Insurance Company.

Speaking at a VCIA conference panel addressing how ROI on captives should be calculated, he said there are many ways to measure the success of a captive, including whether it provided cover when it was not available in the commercial market and whether it generated earnings for its parent.

Attendees in the room seemed to agree. Nearly 50 percent of respondents to an electronic survey said their success was measured by whether they had met a budget or financial target, while 30 percent said they were assessed by claims performance. Only 15 percent said ROI was the most important measure.

Baillie said: “Captives can run in many different ways, whether that is to break even or make a profit. The important thing is to provide what the parent company needs, now or at the end of the quarter.”

He admitted it can be difficult to measure the benefit of a captive if it means measuring claims that never materialised because of good risk management. But he said actuaries can help with that, while peer benchmarking can also give a sense of what claims might have come in.

“You can also measure the dividends you have paid out to the owner,” he added.
Baillie said ROI is important, but only as one of many measures of performance. “We want to know our ROI but we already know how well we are doing,” he added.