Captive and RRG Owners - Is It Time To Get a Second Opinion on Your Reinsurance Program?
The alternative risk market – including captives, risk retention groups (RRG owners) and self-insured pools - tends to attract unique participants. They are often the better risks in a particular segment, companies that became tired of paying the commercial market for the poor performance of the others in that segment, or risks that the traditional market has taken for granted in terms of product innovation and development. By moving to the alternative risk market, they are able to take control of their fortunes and better manage their cost of risk going forward.
Due to the individuality of participants in the alternative risk market and their unsatisfactory experience with the commercial insurance market, it is fitting that they would not want to purchase their reinsurance “off the rack” so to speak. However, when first starting out, a company must carefully watch its bottom line and may not have many reinsurance options available. Often it must focus on the low-cost provider. While basic coverage might meet the needs of a new organization, as that organization begins to grow and mature, its reinsurance needs will begin to do the same.
While your company's current coverage might feel quite comfortable, when was the last time you evaluated your reinsurance program to see what additional options might be available?
Some things to consider when evaluating your program:
1. How well does your current coverage protect your capital? How much of your surplus would be at risk if there were several large losses in a single year? Would your owners, members, or subscribers need to contribute additional capital?
2. Based on experience, are your reinsurance premiums adjustable, and is there a chance that losses in a particular year would require additional premiums for that year?
3. Does your coverage have a loss ratio or aggregate cap?
4. Does your coverage require a large deposit premium, with the hope of receiving return premiums if your experience is better than expected?
As your company or organization has matured, the coverage options available to you have likely changed as well. While availability might have been a constraint for you in the beginning, an updated program could allow you to focus on capital protection, growing your organization or achieving improved investment returns through more efficient cash flow. Reinsurance solutions can be customized to help you meet these goals, while maintaining a level of risk that is comfortable for you.
It never hurts to have a second opinion, and we’re happy to provide you with one, free of charge. At Gen Re we’ve been tailoring reinsurance coverage right here in the U.S. for the past 90 years, and we recognize the unique dimensions of the alternative risk space.