A long-term strategy

What is the attraction of domiciling in Cayman?

A strong domicile needs a strong regulatory framework and a robust infrastructure. Cayman has both, along with one of the top captive insurance conferences in the world. As long as a proposed captive has a solid feasibility study, Cayman can be a “one-stop shop” to get the next great captive up and running.

Is there still growth potential in the sector?

SIGMA felt an immediate and strong interest from clients for analytical assistance in navigating the effect of the COVID-19 pandemic on workers’ compensation, medical professional liability, and other casualty risks.

We have seen a significant increase in interest in captive formations due to the hardening market. Since the state of the market has been exacerbated by COVID-19, more companies are exploring alternative risk transfer options.

Alongside this, it appears that carriers in the traditional insurance market are beginning to withdraw certain environment-related offerings, a trend that could become more prominent in the future.

Companies throughout the industries impacted by this trend will likely have to prepare for a future determined by the environmental, social and corporate governance framework, which may result in a wave of renewed captive interest.

What opportunities do you see for SIGMA in the industry?

SIGMA has done significant research in windstorm and property analysis and developed a database related primarily to wind events in the Atlantic and southeastern US. This information supports captives in the evaluation of various parametric wind and property deductible buydown products.

Parametric policies are challenging because the structure and trigger may change at each policy expiration, and the underlying risk is difficult to analyse.

The most commonly referenced topic in the realm of emerging risks is cyber. Our continued analysis and growing compilation of relevant data and information has provided SIGMA with a unique opportunity to offer innovative approaches to the placement and pricing of this risk.

We believe those innovations may benefit prospective and existing captive owners struggling to grasp the nuances of handling such wide-ranging and potentially volatile risks.

What are the main challenges for your sector in the year ahead?

As the captive insurance sector continues to become an increasingly popular option for insureds, it seems likely that more companies will seek to form or join a captive without fully grasping the parameters necessary for a healthy, long-term captive experience.

To give an example, many potential captive owners may want to exit the traditional marketplace because of increased pricing—but often, that pricing is directly related to increased costs and variability related to the risk, making it difficult for an owner to retain and finance.

An actuarial report analysing adverse scenarios may indicate that a captive is not the appropriate insurance programme to protect the company against specific adverse events. If the metrics (such as total cost of risk) at the adverse level indicate additional funding requirements and the parent is unable to take on that scenario, then a captive is not a viable choice.

What changes would you like to see in the sector?

Beyond the annual actuarial reports required by regulators, we would like to see the captive insurance industry integrate analytical solutions into ongoing decision-making strategies.

To help create this environment, SIGMA staff assist clients to understand how captives can be used as a long-term strategy, as opposed to a short-term solution to current market conditions. Our approach gives clients access to educational resources, consulting, and software tools to navigate the challenges of creating a sustainable, long-term captive approach.

Companies are normally required to complete pro-forma analyses as part of the feasibility process during captive formation. Our approach encourages clients to use the analytics created during this step in a strategic, continuous process. Scenario testing, advanced pro-forma modelling, and stress tests are all examples of analyses that benefit captives on an annual basis.

Ultimately, the captive industry should focus on continuous improvement through experience and innovation, and these aspects can be produced only by professionals who have spent a substantial amount of time within the evolving captive landscape.

By guiding our clients through the analytical steps necessary for a long-term captive solution, we can play a role in building an increasingly innovative industry.

What advice would you give to the next generation of talent in your sector?

Do hard things. Ask to be involved in more complex projects. Write an article. Look for speaking opportunities. Work the booth at conferences. Network with everyone—people change jobs in this industry—the next person you meet may be the one who calls you in 10 years with a great project.

What makes your offering attractive/unique?

Our staff are focused on educational efforts to assist captive professionals in effectively evaluating alternative risk transfer options in a complex insurance market. The SIGMA team strives to stay up to date on current or upcoming changes to the captive landscape and then relay this information to our colleagues in the industry.

Over the last year, several team members have written articles on captive-specific topics, such as tracking changes to a captive’s actuarial reserve estimate and the most important ratios to evaluate when measuring the financial health of your captive. On top of that, our bimonthly Lunch & Learn webinar series has provided high-level overviews of various onshore and offshore domiciles to help our audience better understand the criteria to look for when comparing domiciles for their captive.

The response to these innovative efforts has been strong. In 2022, our educational webinars have averaged approximately 100 registrants per session.

We believe that, to navigate challenges, clients must first understand the analytics and approaches they already have in place, and this belief has been confirmed by the feedback received on our educational material.

Finally, since the actuarial profession has ongoing continuing education requirements that help maintain compliance with current and emerging issues, our staff with captive expertise attend continuing education seminars on relevant captive regulation topics.

For National Association of Insurance Commissioners-related issues, SIGMA has a credentialled actuary with a regulatory background to help ensure compliance changes are understood and accounted for.

As an award-winner, what would you say are the secrets to your success?

Being a mid-sized consulting firm allows each member of the SIGMA team to develop experience with the traditional lines of coverage as well as newer, cutting-edge coverages. This breadth of experience allows SIGMA to provide robust consulting to support the captives industry.

In the captive area, SIGMA completes numerous actuarial reports and feasibility studies each year, and we also serve as a reviewing actuarial firm for multiple domiciles. As a result, SIGMA has ongoing dialogue with captive regulators and captive owners. Through that dialogue, we are able to grasp the needs and challenges associated with the captive industry on a highly practical, realistic level.

We complement our consulting with an educational component granting our users actionable knowledge on how to best implement analytics in the captive realm. These educational tools can be accessed through our online RISK66 portal, which includes documents and training videos on captive-specific topics and analytical tools such as Loss Forecaster (for loss projections) and LORAN (for loss run metrics).