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Pulse Survey Analysis: The Financial Crisis and Captives

In partnership with, Towers Watson conducted this pulse survey to take a look at if and how the current financial crisis and TARP might be affecting operations and capital/surplus for single-parent and group captives.

This analysis was written by analysts at Towers Watson.

The pulse survey “The Financial Crisis & Captives” attracted a good 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, “If your parent company received TARP money, did that change the way your captive does/did business?” Most respondents (approximately 75%) answered that this issue was not applicable. Among respondents for whom it was an issue, most said that TARP money did not change the way business was conducted. Only 4% of single parent captives and 6% of group captives said that the TARP money did change things.

Next, survey respondents were queried as to whether TARP money received by service providers changed their way of doing business. Again, the vast majority (76% of single parent captives and 88% of group captives) was not aware of TARP payments to service providers. Of the small number of captives who knew of TARP funds paid to service providers, nearly all said this did not change the providers’ way of doing business.

The next question dealt with shrinking capacity and its impact on captives. Most (80% of single parent and 63% of group captives) said that shrinking capacity had not been an issue. Where shrinking capacity was an issue, in nearly all cases, the result was that desired excess or reinsurance was obtained, but with more restrictive terms. In one case, for a group captive, the restrictive terms occurred in tandem with materially higher costs for reinsurance. In no case was higher cost alone seen as a result of shrinking market capacity.

Asked whether their captives’ capital/surplus (C&S) position had come under scrutiny since the financial crisis began, most (56% of both single parent and group captives) said “no.” Among those answering “yes,” most captive owners said their management had been scrutinizing C&S more closely; interestingly, the management of single parent captives generally thought the position too high, while the management of most group captives thought it too low. Other responses to this question were evenly distributed among fronting insurers and rating agencies indicating that C&S was either too high or too low.

Next, survey respondents were asked if new controls and assurances had been put in place by captives in response to the global financial crisis. The majority (over 60% for all captives) said “no,” with results even by type of captive.

Asked how effective these controls turned out to be, over 35% of all captives said “very” or “somewhat” effective. 8% of group captives responded that controls were ineffective. Nearly 20% of single parent captives thought it was too soon to ascertain the effectiveness of these controls.

In summary, we conclude that most captive owners have not been heavily affected by the financial crisis. TARP money paid to parent companies or service providers had little impact on captives’ operations. Of greater note to survey respondents was that shrinking capacity in the commercial insurance market did not affect the majority of captives, but for those it did, it often played out in the form of more restrictive terms, occasionally punctuated by increased costs. It appears that increased scrutiny of capital and surplus position was an issue for only a minority of captives, but in cases where closer examination did occur, it was mainly on the part of management rather than fronting carriers or rating agencies. Most captives did not feel the need to implement new controls, but where this did happen, the controls were generally considered effective. In short, captive owners seem to be breathing a relative sigh of relief in regard to the effects of the global financial crisis.

[Jump to full Statistical Data]


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