25 March 2013Actuarial & underwriting

CICA study pinpoints challenges of captive ownership

According to a market study conducted by the Captive Insurance Companies Association, the three greatest challenges in owning a captive, as reported by the survey participants, are retention/growth/expanded utilisation (20.6 percent), regulatory issues including Dodd Frank/NRRA and Solvency II (17.6 percent), and collateral (11. 8 percent).

According to the report’s summary: “these challenges make perfect sense given the continued lacklustre economy, the current myriad of international, federal and state regulatory issues, and the ongoing tight lending environment due to current monetary policy.”

The market study, which in years past has been called the “Fronting Survey”, also reports that half of the participants use fronting companies and the majority perceive the value of their fronting relationship as excellent or moderate.

"While fronting costs are not rising significantly, 50 percent of captives that purchase reinsurance experienced cost increases, largely attributed to tighter market conditions. In addition the report indicated that expanded utilization was on the table: a few survey participants reported that cyber liability, “a hot topic in risk management circle”, was being placed in their captives “most likely because of a lack of availability in the commercial insurance market.”

The full report can be accessed on CICA’s  website.