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CAPTIVES AND THE REINSURANCE MARKETPLACE

The motivation for entering into a financial reinsurance transaction is more closely linked to an investment decision, rather than minimization of risk.

Unlike commercial carriers who have ready access to external sources of fresh capital, member-generated capital is scarce and extremely valuable. Reinsurance should not just protect and supplement that precious asset, but should actively support the Captive’s capital growth and wide strategic goals.

Continuity, stability and availability

Times of crisis create availability gaps for specific groups or products, regardless of individual track record. At such times reinsurance capital needs to enable Captives to remain relevant to membership by maintaining coverage and limits availability.

Ability to remain relevant

Softer markets bring different challenges. Captives have limited access to capital and cannot cross-subsidize between customers or classes. At such times, Captives need to leverage all the assets at their disposal, including reinsurance capital, to compete effectively.

Increased Customer Loyalty through market cycles

One of the rewards for commitment to customer service though market gyration is exceptional renewal ratios. Another reward is organic growth of membership, services, capital and influence.

Sensitivity to unusual loss frequency or severity

Captives have heavy concentrations of similar exposures, meaning economic and societal changes can lead to severe volatility swings. Therefore, effective member protection is paramount.

Role of Reinsurance

Reinsurance can be so much more than merely a financial parachute – it can play a major role in supporting captive growth throughout the cycle. Properly structured reinsurance allows the balancing of member needs with financial security and strength

Mark Synnott
Director Carvill London Ltd.