DECEMBER 2013
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Captive Insurance Industry
Still Thrives
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The captive insurance industry continues to thrive decades after this market-changing alternative risk-financing mechanism took the commercial insurance industry by storm. When captive insurers arrived on the scene, commercial underwriters had to adjust their product offerings to help clients finance risk with this new tool. Today, Old Republic Risk Management is assisting clients in utilizing their captives in other ways to improve not only their business but also various business relationships.
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As large corporations began embracing the single-parent captive insurer concept in the 1970s and 1980s, the casualty insurance industry had to alter how it provided capacity to those clients. Before captive insurance, large insureds had covered the so-called working layer – or predictable level – of their losses with commercial casualty insurance. But with the advent of this new, non-traditional risk-financing approach, large corporations could retain those working-layer losses through a structure in which commercial underwriters reinsured that risk into their clients’ captives. At the same time, large corporations – which significantly beefed up their loss-prevention programs to reduce their predictable losses – asked their insurer partners to cover catastrophic risk to protect the insureds’ balance sheets.
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Since the 1990s, captive-reinsured programs have faced competition from insurers’ large-deductible programs. Those programs allow insureds to retain their working layer losses more directly than they can by establishing – and pre-funding – captive insurers.
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The captive insurance industry, meanwhile, has evolved to aid captive owners in other ways beyond financing working layer losses, and Old Republic is helping its clients take advantage of those opportunities. For example, Old Republic this year created two captive-reinsured programs that allow clients to provide primary casualty coverage to their vendors and customers. Our clients are comfortable allowing their captives to assume the risk of third-party loss, because of the close business relationships the clients have with these parties. In return, the vendors and customers are tied more closely to our clients, improving everyone’s satisfaction and their relationships with each other.
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This type of captive arrangement is certainly not new, but it demonstrates how Old Republic is there to support our clients as they seek to add value to their business relationships by creatively utilizing their captives.
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 | Best regards,
Steve Oberst
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