Product Update

"Hard Market Alternative Risk Transfer Solutions—Agency Captives" and Market Corner Update in Risk Financing


Risk Financing Perspectives for this Risk Financing release provides a discussion on "Hard Market Alternative Risk Transfer Solutions—Agency Captives." It is authored by Carol Frey, divisional vice president for Great American Insurance Group, Alternative Markets, in Windsor, Connecticut.

Difficult insurance market conditions routinely lead to new risk financing solutions. In the 1980s, one such solution that gained a lot of attention was an agency or association captive. Current conditions are creating a renewed interest. An agency captive is exactly as the name suggests—a captive insurance company owned or sponsored by an insurance agency. The strategy is for an agency to target a profitable book of business, assume some risk, and ultimately earn underwriting profit that outpaces other revenue sources—typically commission arrangements. The discussion explains some of the potential benefits of the concept and provides an example of how an agency captive could be structured and utilized.

"Market Corner" provides quarterly updates on current property and casualty insurance market conditions. For most buyers of commercial property and casualty insurance, it is difficult to find any bright spots in the market. Yet as the global economy slowly begins to find its footing, there seems to be light at the end of the tunnel. For many lines in certain sectors, the rate of increases at renewals is no longer accelerating as insurance pricing approaches technical adequacy and additional capacity enters the market. However, the growing sophistication of insurance portfolio analytics is leading to sustained underwriting discipline, which in turn is expected to both (1) smooth future market cycles and (2) help differentiate more favorable risks from those less favorable. Insureds more than ever need to do everything they can to differentiate themselves as part of the more favorable tier.