Captive Insurers Finding New Footholds

Street sign pole with 2 green arrows marked 2018 pointing left and 2019 pointing right

Robert J. Walling III | January 10, 2019

Street sign pole with 2 green arrows marked 2018 pointing left and 2019 pointing right

Editor's note: The following article is adapted from a Pinnacle commentary published on December 21, 2018, and is reprinted with Pinnacle's permission.

The Year in Review and a Look Ahead to 2019

When we remember 2018, its events and circumstances have been more varied and challenging than one might imagine. Hacks, ransomware, and data intrusions were announced weekly. Volcanic eruptions, wildfires, and mudslides decimated a record number of homes and forest acreage. The entire island of Puerto Rico continues to suffer Hurricane Maria's devastating effects. We have also become numb to the numerous senseless shootings in places where we used to feel safe.

On the technology front, infant gene editing is raising profound ethical questions while offering hope to those suffering from hereditary diseases. The benefits and risks of fast-advancing technologies like autonomous vehicles provide new perspectives. Artificial intelligence applied in service to humanity proffers great promise yet potential threats.

The advent of captive insurance companies fundamentally changed the commercial casualty market many years ago and now constitutes more than half of that premium volume. Even as enterprise risk captives (i.e., small captives making an 831(b) election) are under fire by the Internal Revenue Service and threatening to give the entire captive industry a black eye, captives are finding new footholds in renewable energy, InsurTech, start-ups, and the cannabis industry.

In 2018, Pinnacle Consulting Actuaries Derek Freihaut, Chris Holt, and Rob Walling co-authored a seminal paper  on the issue of risk distribution as it relates to insurance entities. Pinnacle’s new approach provides a tool to address the risk distribution criteria required by the deliberations in the Avrahami and Reserve Mechanical US Tax Court decisions.

Also in 2018, following many years of research and preparation, Pinnacle Consulting Actuaries Aaron Hillebrandt and Joe Herbers completed a professional paper on solvency regulation in the property-casualty insurance industry and the actuarial profession. This formative retrospective documents many of the industry's and profession's challenges since the late 1970s and is a valuable tool in helping the insurance business anticipate future issues.

What might cyber, artificial intelligence, autonomous vehicles, healthcare or any unforeseeable developments bring to make us dig even deeper in 2019 and beyond? Will once mighty institutions or companies be shadows of their former selves when the clock turns toward 2020?

While Captive.com readers wait to hear back from Pinnacle in the coming year, be sure to check out their extensive thought leadership and video libraries on Captive.com to catch up on Pinnacle news and insights.

Robert J. Walling III | January 10, 2019