Twenty years of innovation and growth
Rob Collins and Rick Hartmann of Guy Carpenter explain how the company has been forging relationships and driving business in the thriving captive insurance market.
"This is a time to recognise the full life cycle of a captive." Rick Hartmann
"Guy Carpenter remains committed to driving innovation." Rob Collins
For over two decades Guy Carpenter has been helping captive insurers achieve their risk management and capital management objectives. In 2001, Guy Carpenter placed our first prospective reinsurance treaty involving a captive insurer. In the years following, we have grown with the captives sector, as captives have moved from alternative risk to mainstream, and expanded our suite of capabilities to accommodate the increasing sophistication of risk transfer and risk financing options available to captives.
In 2001, there were approximately 4,300 captives in existence worldwide writing a combined $38 billion in premium. Compare that to year-end 2022 when those numbers increased to 6,191 captives worldwide (in 66 domiciles). RIMS has projected that the premium volume is “poised to reach a projected $250 billion global market value by 2028”.
Guy Carpenter recognised the importance of serving captive insurers and entered the captives market with an understanding that it represented a unique opportunity. Necessary to serving this unique segment was having an understanding of the needs of the various parties to the transaction, including what motivates captive owners, who they are and what they do as a primary business, what trajectory they will determine and how we can help them achieve that goal.
Since the time in 2001 when we placed that first solution, Guy Carpenter’s Captive Segment now supports nearly two dozen group captive clients, representing more than 1,800 members, and in excess of 75 single parent captives.
Change is the only constant
We understand that simply placing a reinsurance programme for a captive is not where our job ends. We provide a wide range of advisory and analytical tools. Our goal is to help our clients understand their evolving exposures, position them to effectively respond to emerging risks and provide them with the resources to capitalise on new market opportunities.
We realise that changes in technology and increasing complexities in underlying exposures mean that our clients require a more comprehensive and holistic approach to their reinsurance strategies. The goal is to deliver efficient risk transfer solutions, which reduce volatility and provide balance sheet protection.
We continue to work to meet the needs of the evolving insurance marketplace, in particular with solutions to accommodate non-traditional risks such as medical stop-loss, cyber liability, business interruption and D&O. Captives are looking for ways to hedge against social, medical and economic inflation, so we offer retrospective solutions such as adverse development covers or loss portfolio transfers to enable the diversification of run-off liability to third party companies and mitigate the impact of the residual liability which captives bear.
Run-off liability is the residual of known and unknown exposure which remains after the underwriting year has long passed. For a captive, it is vital to know that mechanisms exist which provide solutions to reduce or eliminate these “long tail” liability exposures. To provide economic finality, we can offer loss portfolio transfers. This is a form of reinsurance which transfers known and unknown liabilities to a third party on a retrospective basis. For full legal and economic finality, we can facilitate a novation. Many of our clients have novated past underwriting years and have done so on a recurring basis.
Within Guy Carpenter’s Captive Segment, we have a dedicated team of brokers and actuaries. Our team of actuaries offer benchmarking that allows our clients to see how they are performing against their peers in the market. Using our proprietary modeling tool, BenchmaRQ, we can provide a one-year fully stochastic economic capital model that leverages industry data along with proprietary risk models to assist our clients in setting tolerances for return and risk on capital.
We use a risk-consistent risk tolerance framework to understand capital consumption, define risk transfer solutions and allocate capital to portfolios or programmes. We work with our client to set boundaries to maximise use of the captive insurance asset.
Our framework enables input from the client and its parent, along with our enterprise-wide colleagues to be shared and blended into an industry leading solution. This addresses management of the captive’s capital while optimising predefined goals of the captive.
Staying ahead of the game
As always, we recognise that we need to be dynamic. There is a recognition that a client’s view of risk will change given different states and future business goals. We will be able to reflect that in the risk tolerances.
For captives looking to secure a rating, our ratings advisory services will demonstrate how they can reduce letters of credit costs, fronting costs, and meet lender requirements. Our enterprise risk management support includes strategic planning, establishment of risk tolerances, growth strategy consultation, and capital modeling.
Parametric covers have been around for about 20 years, but recently the captive insurance market has gained an appreciation for how these index-based protections can be used to supplement their existing covers. Guy Carpenter offers several proprietary products including wildfire (FireCell), typhoon (StormGRID) and earth movement (QuakeCube) that are actively used by our captive insurance clients.
Having a healthy relationship with a captive’s fronting carrier is essential to the quality of a that captive’s life. There is a multitude of reasons this should be carefully considered: rating implications, collateral retentions, growth, reinsurance and claims management. Recognising the importance of collaboration, Guy Carpenter has forged strategic partnerships with industry-leading organisations to enhance its captive insurance offerings.
These partnerships enable Guy Carpenter to access a broader range of resources, expertise, and market insights, ultimately benefiting its captive insurance clients. By leveraging these partnerships, Guy Carpenter can deliver comprehensive and innovative solutions that address the unique challenges faced by captive insurance companies.
Looking ahead, Guy Carpenter remains committed to driving innovation and supporting the growth of the captive insurance industry. The company continues to invest in research and development, technology, and talent to stay at the forefront of industry trends and emerging risks. By staying agile and responsive to evolving client needs, Guy Carpenter is well-positioned to navigate the changing landscape of the captive insurance industry and deliver risk management and capital management solutions to help captive insurers achieve their strategic objectives.
Innovation, market knowledge and a proactive approach to managing a captive’s risk are becoming a matter of timing, adaptation and proper risk structures. Prospective reinsurance placement is needed to handle forecast risks. Retrospective mechanisms are needed to address aged liabilities or those which may be a threat to future profitability or capitalisation. This is a time to recognise the full life cycle of a captive. The Captive Segment has continuously evolved to meet these comprehensive facets of a healthy captive.
Ultimately, our success in the captive insurance industry can be attributed to our clients. Without them, we would not have the opportunity to improve and expand our services. With our deep expertise, specialised services, innovative solutions, and strategic partnerships, Guy Carpenter continues to shape the future of captive insurance.
As the industry evolves, companies can rely on Guy Carpenter’s unwavering commitment to delivering tailored, data-driven solutions that optimise risk management and drive long-term value in the captive insurance space.
Rob Collins is managing director, captive segment leader, North America at Guy Carpenter. He can be contacted at: arthur.r.collins@guycarp.com
Rick Hartmann is senior vice president and captive sales leader at Guy Carpenter. He can be contacted at: rick.hartmann@guycarp.com
