11 June 2015Actuarial & underwriting

A good understanding of reinsurance helps prior to formation

A deep understanding of the reinsurance industry is hugely beneficial when forming a captive in order to make the most of the available risk transfer opportunities.

That is according to Julian Laguna, corporate insurance manager of Pacific Rubiales Energy, speaking at the Bermuda Captive Conference held this week (Monday June 8 to Wednesday June 10).

Pacific Rubiales Energy is a Canadian petroleum exploration and production company in the business of heavy crude oil and natural gas. It has substantial operations in Latin America, and Colombia-based Laguna, manages the company’s Bermuda-based captive.

He said that forming a captive is not easy or quick. He said others expect the process will take six months but he personally spent almost two years researching the best options with a specific emphasis on how it would maximise benefits from the reinsurance world.

“I knew that having a captive would allow us to access the risk-taking appetite of the international markets, accessing better rates and terms and conditions while also allowing us to centralise our risks and costs within what was a fast growing and increasingly international business,” he said.

“But I wanted to go into it with a level of sophistication in terms of understanding the reinsurance markets and I began exploring the possibilities some two years before it was actually formed. I would definitely recommend having a team that has a good knowledge of the reinsurance markets as you get more respect when you speak to your reinsurance broker.”

He gave some other tips to risk managers exploring the possibility of forming captives. These included: making a strong case to the senior management team, accepting it will not be an easy or quick process, having a good relationship with auditors, grasping the tax implications, ensuring a good understanding of the role reinsurance will play, and taking things slowly and surely.

He added that Bermuda was the first choice for him for a number of reasons including the way the island has embraced the Latin American Markets in recent years. “For me, Bermuda is a very important market with very high potential in Latin America. It is like a small London with all the skills and capacity we could need.”