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Corporate Regulation and Governance in Captives

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Delve into captive insurance governance matters including board attributes, board structure, and board accountability. With 30 years of insurance experience from the auditing, regulatory, and management side, Derick White, managing director of corporate governance and regulation for Strategic Risk Solutions, offers key insights into captive board governance.

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Captive Insurance Company Strong Risk Culture Can Be Created

Building Blocks
December 12, 2016

Captive insurance companies and their owners/members, like commercial insurers, face an array of emerging risks. They no longer have the option of just focusing on traditional risks. An article in the December 2016 issue of Emphasis, Willis Towers Watson's global magazine for insurance executives, states that insurers' need for enterprise risk management (ERM) is "greater than ever."

This fact is also being considered by captive domicile regulators as they weigh requiring Risk Management and Own Risk and Solvency Assessment (ORSA) standards in a proportional manner for captives.

In the Emphasis article, titled "Practical risk management creates a winning, risk-aware culture," the authors—Jason Abril, Kevin Madigan, Matthew Peters, and Mike Wilkinson—note four principal building blocks for a successful risk management framework, as follows.

1. "Outcomes and objectives" including "adverse events anticipated earlier and effectively managed" and "scarce capital resources optimally allocated" that deliver "improved value"

2. "Process and control cycle" that includes "risk identification," "risk measurement," "risk selection," and "monitoring and management"

3. "Tools and analytic capability" including "underwriting and customized modeling," "valuation tools/economic value," "business optimization tools," and "data tools and predictive analytics"

4. "Organizational ingredients" that include "governance and culture," "risk policies and standards," "risk appetite framework," and "capital allocation"

The four principal building blocks for successful risk management framework will be a challenge for small captive insurers and their managers to achieve. Most of the key components needed to build a strong risk culture are on point. Some of the key components are repurposed here to fit single-parent and group captives, as follows.

  • Positive support from the board—"tone from the top"

  • Common risk of economy and taxation

  • Risk support from single-parent owner or group members

  • Understanding of the business(es) being insured

  • Interaction between a captive's operational departments and/or those of the captive manager

  • Positive risk management in key business meetings of single-parent owner

  • Encouragement of a diversity of views

  • Willingness to hear and challenge and express differing viewpoints

  • Defined timelines for interaction

  • Clear and aligned objectives with those of the single captive parent or those of the group captive board

The article authors' specialties include risk and capital management, property and casualty ERM, and insurance management.

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