Introducing! The Versatility of Hybrid Captives!
Rob Walling

Introducing! The Versatility of Hybrid Captives!

Rob Walling May 04, 2022 Posted in: Blog Posts, Alternative Markets

“It slices, it dices…it even makes julienne fries!”

The old advertising trope that originated with Veg-O-Matic commercials was created to take advantage of something people tend to love – versatility.

The company Victorinox Swiss Army, for example, built a whole business model around our desire to have a tool that accomplishes many different tasks. This ability isn’t limited to retail, however. Surprisingly, captive insurance companies can act as just such multi-taskers…but how?

Businesses that form or join a captive insurance company to accomplish one risk-financing objective – say, funding workers’ compensation (workers’ comp) or auto liability deductibles – often ultimately use captives for other purposes.

A business that initially uses a captive to fund workers’ comp or casualty (e.g., professional, general or commercial auto liability), may also explore medical stop-loss, property and/or a wide variety of uninsured or underinsured enterprise risk coverages. Of course, a captive could also start with enterprise risk coverages and expand into other areas as well.

However, for many businesses, the captives used to fund these different risks were developed at different points in time, using separate and distinct captive insurance companies. 

For example, a manufacturer might be in a group captive for their workers’ comp, general liability and auto coverages. They may be in another group captive for their property coverage. An RRG, or risk retention group, may insure their products liability. They may also own one single-parent captive for their medical stop loss coverage, and another for enterprise risks. 

For a manufacturer, enterprise risks might include reputational risk, supply chain and other business income coverages, cyber liability, executive risks (directors and officers, employment practices, wage and hour liability), regulatory actions, mechanical breakdown and many others. 

While all of these structures may be excellent risk financing tools, they offer no coordination of capital, and no risk distribution or diversification between the various captives. It begs the question, are all of these siloed captives the optimal design?

In Pinnacle’s May APEX Discussion Series on May 12 at 2:00 p.m. ET/1:00 p.m. CT, Principal and Consulting Actuary Rob Walling will be joined by Nate Reznicek, Head of U.S. Distribution for I-RE. According to the I-RE website, “I–RE is a specialist captive insurance and reinsurance underwriting agency and a Lloyd’s coverholder.” They “specialize in working with captive insurance companies, captive managers and insurance brokers seeking opportunities to share risk and reward.” 

Nate and Rob will explore the current siloed captive environment, as well as opportunities to develop hybrid captives that accomplish multiple risk management and risk financing goals that increase capital efficiency and risk distribution. 

Wait until you see everything hybrid captives can do.

Rob Walling is a principal and consulting actuary with Pinnacle Actuarial Resources and has been in the insurance industry since 1989, consulting since 1997. He is focused on commercial lines ratemaking and product development, actuarial studies for captives and self-insureds, commercial lines loss reserving, legislative costing, litigation support, regulatory consulting and expert testimony. Rob is a Fellow of the Casualty Actuarial Society (CAS), a Member of the American Academy of Actuaries (AAA) and a Chartered Enterprise Risk Analyst. He has served on the Casualty Actuarial Society (CAS) Board of Directors, the Casualty Committee of the Actuarial Standards Board, and as chairperson of several CAS and AAA committees and task forces. Rob is a frequent speaker at industry meetings on professionalism, predictive analytics, captives and alternative markets, medical professional liability and government insurance program topics.

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