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November 14th - 17th, 1999
Philip J. Harvey, President, Philip J. Harvey & Company,
Inc. "Experts Say Soft Market Is Best Time to Form Captive"
Philip J. Harvey, president of Philip J. Harvey & Co., said companies shouldn't wait for supply to decrease and insurance policies to become expensive before looking at alternatives. "You don't wait for the problem to happen," he said Tuesday at the Ninth Annual World Captive and Alternative Risk Financing Forum. "It's too late then. You have to have plan B," Harvey said. Harvey mentioned the workers' compensation market, where insurers have been selling products below costs. He suggested that the market would turn next year when insurers who are faced with losses will leave the market altogether. Companies that have enjoyed lower premiums in the market may be forced to look at the alternative market to find insurance. A rent-a-captive, or segregated cell facility, is a captive that is shared by more than one company. Usually formed by insurance companies, brokers and captive managers, rent-a-captives rent their surplus or capital to their clients so that their clients don't have to launch their own captive, said Philip Stevens, vice president of Aon Group Inc. Stevens said five domiciles allow rent-a-captives: Bermuda, Guernsey, Cayman Islands, Gibraltar and Vermont in the United States. He said a rent-a-captive is a good way for a company to test the waters about forming a captive of its own. The benefits of a rent-a-captive are underwriting profits and investment income, Stevens said, plus companies can control their losses and manage their claims better. The owners of the captive receive revenue and can gain new business or keep existing clients. He gave an example of a distribution of a rent-a-captive
showing 60% of premium fees went to the loss fund, while the rest went to
various administrative expenses, including a 12.5% commission fee and 12.5%
toward reinsurance |
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Rent-a-Captives and Segregated Cell
Facilities :
The best time to set up or join a rent-a-captive may be in a soft
market, experts said.