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March 2006 Pulse Survey Analysis:
Reinsuring Your Captive

 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 March Pulse Survey on the topic Reinsurance and Captives elicited 40 responses.

Two-thirds of the captive respondents said they purchase reinsurance of the captive, whereas the remaining third do not. For the third that don’t purchase reinsurance, we suspect many captives reinsure an underlying program, and insurance layers are placed separately above the captive layer as opposed to the captive buying reinsurance directly.

Given the difficulties in meeting increased creditworthiness requirements of reinsurers, we were surprised that so many captives still purchase reinsurance. (This could reflect the interest of those completing the survey, more than a true picture of the captive market, or the respondents could include many healthcare captives, which traditionally buy lots of reinsurance).

Of those that purchase reinsurance, 56.5% have changed reinsurers within the past five years or since captive inception, whichever is more recent. Though this is a slight majority, it reflects that 43.5% still have the same reinsurers they had five years ago — a testament to long-term relationships many captives still have with their reinsurers.

Why have the 56.5% switched reinsurers? Sixty percent of this group said the cost was too high, 30% said reinsurance became unavailable, and 20% said the terms were too onerous. This reflects what we have seen in the increasingly volatile reinsurance market.

Eighty-one percent said they buy traditional excess of loss (guaranteed cost) reinsurance and 42.9% said they purchase aggregate stop loss insurance. Only 3% purchased finite risk and 3% purchased swing plan reinsurance coverage. This reflects the straight-forward uses of most captives and the few more sophisticated uses of reinsurance being purchased (i.e., swing plans and finite risk plans).

The lead article in the March issue of the Captive Insurance Company Reports focused on this topic. That article dealt with the challenges with reinsurers, especially the mass disappearance of reinsurers over the past 13 years. The article points out that only 10 of 25 reinsurers from 1993 are still actively writing business as the same company today. Many are out of business.

Furthermore, last year’s hurricanes also hurt many reinsurers’ balance sheets, making them more demanding of smaller insurers such as captives. We expect that reinsurance would become much more difficult than the responses suggest. Possibly it is still early in the year, and problems may arise later.

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