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Pulse Survey Analysis: What's Up With Captive Fronting and Collateral Requirements -- Part 3

 In partnership with, Towers Watson conducted this pulse survey to take a look at the issues involved in reinsuring your captive.

This analysis was written by analysts at Towers Watson.

The last pulse survey of the three-part Fronting series attracted a modest number of captive owners or their representative managers or consultants. Based on the first question, respondents were split approximately two-to-one between single parent and group captive structures.

The second question on the survey asked, “How important is it that your captive be fronted by an A-rated fronting carrier?” A majority of respondents (55% of single parent captives and 75% of group captives) answered that this issue was either “critical” or “very important.” 46% of single parents and 13% of groups considered this issue “important,” and only one group captive (no single parent captives) considered A-rated fronting to be irrelevant for selection purposes.

Next, survey respondents were queried as to whether changing market conditions had influenced their carriers’ collateral position/requirements. This question elicited responses across the board. While the most common answer was “Not really, requirements and methodology have been consistent,” other answers ranged from “Yes, I’ve experienced considerable accommodations” to “Definitely not, I have a seen a reversal in position.” Responses did not seem to be tied to survey-takers’ affiliation with either group or single parent captives.

Question 4 dealt with captives’ awareness of the availability of collateral buyout options. Not surprisingly, over 90% of single parents believed that no such options were available. However, a majority of groups did know of such options.

Asked whether their collateral requirements were influenced by the perceived quality of their TPA, nearly half of both single parent and group captives said that TPA quality was not a factor. Interestingly, though, around 10% of single parent captive representatives stated that their organization had received favorable terms due to the recognition of high quality TPA services, while no group captives had this answer. However,, 13% of the group captives stated that their captive had received unfavorable terms along this dimension.

In summary, we may conclude that most captive owners (especially owners of fronted captives themselves) consider it very important, some critically so, that their company be fronted by an A-rated carrier. We might expect this response to be even stronger given the recent turmoil brewing in the insurance and financial services industries.

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