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Captive Insurers' Use of Swing-Rated Reinsurance Contracts Focus of SCCIA Webinar

Upward Swing HT
March 04, 2016

The use of swing-rated reinsurance contracts by captive insurance companies, including actuarial, accounting, and regulatory implications, was the focus of a March 3, 2016, webinar hosted by the South Carolina Captive Insurance Association (SCCIA).

A swing-rated reinsurance contract is another term for a multiyear reinsurance contract. These contracts have gained in popularity given the ongoing soft market conditions and their ability to potentially lock in pricing.

 The hour-long presentation included the following speakers.

  • Ken Barrett, chief executive officer, Besso Re

  • Peter Johnson, president and consulting actuary, Bartlett Actuarial Group

  • David Ward, senior audit manager, Bauknight Pietras & Stormer P.A.

  • Jay Branum, director of captives, South Carolina Department of Insurance

  • Will Davis, property and casualty actuary, South Carolina Department of Insurance

As the name of the webinar—"Swing-Rated Reinsurance Contractsthe Good, the Bad, and the Reality"implies, the presenters focused both on the "good" associated with swing-rated contracts, as well as the "bad" and how they really work. There were several takeaways from the presentation, as follows.

  • Pricing will also be set in order to protect the reinsurers with the midpoint being used to set provisional.

  • Captives may want to pair these contracts with an aggregate stop loss policy in order to more fully protect the captive's surplus position.

  • The accounting for these contracts requires more work, and, from both an accounting and an actuarial perspective, the testing needs to occur on an annual basis in order to ensure they pass the risk transfer tests.

  • Finally, from a regulatory perspective, the regulators are still developing their analysis skills for reviewing swing-rated reinsurance contracts.

The webinar was recorded, and a handout of the presentation slides was made available to participants. Please visit the SCCIA website for more information on this and upcoming SCCIA events.

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