October 2005 Pulse Survey Analysis:
In partnership with captive.com, Towers Watson launched its second monthly pulse survey taking a look at issues surrounding Directors & Officers coverage for captives.
This analysis was written by analysts at Towers Watson.
Our October pulse survey on protecting captive directors and officers elicited 41 responses, though many of these did not answer the second survey question on D&O insurance. Of the respondents, 58.5% were from single parent captives and 41.5% were from group captives.
When asked if they had read their parent’s or sponsoring organization’s by-laws, 62.5% of the single parent respondents and 78.6% of the group captives said yes; the remaining had not.
We asked the question because the by-laws often dictate whether and how directors and officers, especially outside directors, are to be protected. But there are instances where by-laws do not extend protection, and insurance may be the only financial protection. That’s why we believe it is important to read the by-laws.
So how available is D&O insurance?
For single-parent captives, of the 16 respondents, 25% say they don’t buy insurance. Another 37.5% said coverage is readily available, and another 25% say it is available but there were limited markets. Finally, 18.8% said it was available but with some coverage concerns. No one said coverage was difficult to buy. (Percentages exceed 100% because respondents could make two choices, and a few did.)
Group captive respondents had a more difficult problem with insurance. Of the 14 respondents, 35.7% do not buy it; 7.1% said it is a major problem that could threaten the captive’s existence; 21.4% found it difficult to find acceptable coverage; and 21.4% found it difficult to find available markets. Only 7.1% found coverage readily available with no coverage concerns; 21.4% said coverage was available but with limited markets; and 14.3% said it was available but with coverage concerns.
These results confirm what we expected: D&O insurance is a more pronounced problem for group captives than for single-parent captives. Hence, we believe that the issue needs to be analyzed thoroughly by captive owners, through their managers and brokers, to determine if coverage is acceptable for directors and officers.
This topic was the lead article in Captive
Insurance Company Reports in October 2005, entitled Protecting
Captive Directors and Officers.