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Pulse Survey Analysis: Capital Market Chaos

 In partnership with captive.com, Towers Watson conducted this pulse survey to take a look at the economic issues impacting the captive insurance industry..

This analysis was written by analysts at Towers Watson.

The captive.com pulse survey “Capital Market Chaos” attracted a fair number of captive owners or their representative managers or consultants. Based on our query, a majority of respondents were affiliated with single parent, as opposed to group, captives.

The first question on the survey asked, “To what extent has the recent financial market turmoil given you concerns about the financial solidity of your captive?” Most respondents (64% of single parent captives and 50% of group captives) answered that this issue affected them either “little” or “not at all.” However, 9% of single parents and 13% of groups stated that financial solidity was a concern “to a large extent.”

Next, survey respondents were queried as to whether the recent financial turmoil had spurred reevaluation of their captive’s investment philosophy. Notably, nearly 60% of single parent captives and 75% of group captives were either in the midst of or had recently finished reevaluating their investment philosophies as a result of the recent turmoil.

Question 3 dealt with captives’ actual implementation of changes in investment strategy. 50% of single parent captives and 44% of group captives stated that they were now taking a more conservative stance. The balance of responses was fairly evenly scattered among taking a more aggressive position, planning to make some change shortly, or having no plans to do so.

Asked whether their captives were experiencing any issues surrounding collateral as a result of current market conditions, over half of both single parent and group captives said that they were having collateral difficulties ranging from higher costs to higher required amounts to general availability. Of those who had not yet experienced issues, most did not expect to in the future.

In summary, we conclude that most captive owners, while not overly concerned about their financial solidity, have still modified their investment policies and become aware of collateral challenges in the midst of the current financial market conditions. In the coming months, it will be interesting to see if captive owners have taken a realistic view of their own financial futures. We suspect they have, based on what we have seen within our client base and in published reports by others, like A.M. Best, which suggest that captives have withstood the current challenges relatively well in comparison to other insurance sector participants.

[To full statistical results]

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