A Deep Dive into Risk Transfer and Distribution for Captive Owners

Understanding how captive insurers evaluate risk transfer and risk distribution is essential for accurate program structure and regulatory compliance. In our latest episode of The Edge of Risk podcast by IRMI, Joel Appelbaum speaks with Derek Freihaut, principal and consulting actuary with Pinnacle Actuarial Resources, for an in-depth conversation that breaks down these core actuarial concepts and their practical implications for captive owners.

Mr. Freihaut explains why the industry relies on tools such as expected adverse deviation (EAD) to quantify risk distribution and how expected reinsurer deficit (ERD) provides a more robust approach to assessing risk transfer than traditional rules of thumb. The discussion highlights how reinsurance structures—particularly quota share and excess-of-loss arrangements—influence variability, capital needs, and a captive's ability to spread low-frequency or high-severity exposures. He also outlines how these analyses help owners evaluate retentions, set appropriate limits, and assess whether new coverages enhance or strain the captive's overall risk portfolio.

Hear the full conversation on Captive.com to gain practical, actuarial-grounded insights into building a stronger, more resilient, captive program.