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CICA Releases Results of 2008 Captive Survey
on Fronting, Reinsurance and Employee Benefits

SCOTTSDALE, ARIZONA, March 7, 2008—The results of the annual captive survey conducted by the Captive Insurance Companies Association (CICA) were presented today at CICA’s 36th Annual International Conference in Scottsdale, Arizona. Although the 2008 CICA survey concentrated on fronting issues as it has in past years, the scope of the survey has been expanded in recent years to include reinsurance issues, employee benefits in captives, and comparative financial information about captives.

Survey Methodology: The survey was drafted and approved by a CICA committee and was conducted by the independent consulting firm of Veris Consulting, LLC, of Reston, VA. Participants were solicited through communications from CICA and through the collaborative efforts of a number of captive domicile associations. All participants were guaranteed anonymity and the results were compiled by Veris Consulting without identifying any of the participants.

Overview: A significant majority of respondents represented single parent captives (64%), followed by 14% of respondents representing RRGs, 10% of respondents representing segregated cell type captives, 9% of respondents representing association captives, and 3% of respondents representing agency captives. 75% of respondents reported being domiciled in a US jurisdiction, with 25% domiciled off-shore. 57% of respondents have been existence for 6 or more years, 37% in existence for 1-5 years, and 6% in existence for less than one year. 7% of the respondents reported that they have placed employee benefits in their captive, up from 5% in last year’s survey. However, 9% of the respondents reported that they intend to place employee benefits in their captive during the next five years, with 47% reporting that they may consider placing employee benefits in their captive during the next five years.

Highlights:

• Fronting:
  
  
  • 59% of respondents reported fronting costs as 5% or less of annual premium, compared to 44% last year. 26% reported fronting costs as 6-10% of annual premium, and only 2% reported fronting costs as 11-15% of annual premium.
  • 92% of respondents listed admitted paper as one of their primary reasons for using a fronting carrier, with regulatory compliance as the next highest reason at 51%. 86% of respondents rated the overall level of importance that fronting represents to their captive as either “very important” or “important.”
  • Respondents reported using the following fronting carriers:
    
    
    • AIG – 41%
    • Old Republic – 18%
    • Zurich – 15%
    • Ace – 12%
    • All other fronting carriers were cited by less than 10% of respondents, but many respondents used more than one fronting carrier
      
      
  • 64% of respondents characterized the price of fronting as “reasonable,” with the remainder split almost evenly between “expensive” and “inexpensive.”
  • 57% of respondents reported no change in the cost of fronting from the prior year, while 24% reported a decrease in costs and 19% reported an increase in costs, most of which was less than a 5% increase.
  • In response to a question about the kind of collateral required (with 81% of respondents reporting that collateral was required), letters of credit were named by 78% of respondents, with trust accounts named by 31%, and cash by 14% of respondents.
    
    
• Reinsurance:
  
  
  • Respondents were evenly split 50/50% on whether they buy reinsurance.
  • 85% of respondents reported that they considered the price/value relationship of their reinsurance to be reasonable.
  • 44% of respondents reported that their reinsurance costs are the same as the prior year, with 46% reporting a decrease. Only 10% of respondents reported an increase.
    
    
• Biggest Challenge About Owning a Captive:
  
  
  • While fronting and reinsurance have dropped significantly as challenges to owning a captive, service concerns grew dramatically from approximately 12% on last year’s survey to 36% in 2008. Other challenges listed were 22% for tax concerns, 13% for reinsurance, and 9% for fronting.
    
    

Disclaimer: This summary, of necessity, covers only a small portion of the total survey results. Full survey results are being made available only to CICA members as a benefit of membership. As CICA prepares for future surveys, it will continue to seek the participation of more and more captives. 89 respondents participated in the 2008 Survey. These results are based entirely on the information provided by respondents to the survey, who may or may not reflect a statistically accurate sample of the captive industry. Survey findings are also subject to interpretation and these results should not be used to predict future events or influence underwriting or marketing decisions.

Acknowledgment: CICA would like to thank Munich Re America for its generous contribution which provided significant underwriting for the out-of-pocket costs of conducting the 2008 CICA Survey. In particular, we would like to thank Carol Pierce, VP Specialty Markets, of Munich Re America for her leadership in obtaining underwriting support.

For questions regarding the Survey results, contact:

Magali Welch, Chair – CICA Survey Committee
mwelch@jlco.com.
or
Mike Mead, Session Coordinator
mmead@mrmeadandco.com

For questions regarding CICA and future surveys, contact:

Dennis P. Harwick, CICA President
Phone: 727-374-7146
dharwick@CICAworld.com
www.CICAworld.com

Captive Insurance Companies Association
4248 Park Glen Road
Minneapolis, MN 55416
Phone: 952-928-4655

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