As a mid-sized consulting firm, everyone on the SIGMA team gets experience with all the traditional lines of coverage as well as the newer, cutting-edge coverages. This breadth of experience allows SIGMA not only to provide robust analytical tools and consulting to support the captive insurance industry, but also to complement these services with an educational component granting our users practical knowledge on how to best implement analytics in the captives realm.

These educational tools can be accessed through our online RISK66 portal, which includes documents and training videos on numerous captive-specific topics and analytical tools such as Loss Forecaster (for loss projections) and LORAN (for loss run metrics).

With an increasingly complex and hardening insurance market, our staff are focused on educational efforts to assist captives professionals in handling these issues appropriately. In particular, we have written recent articles on how best to use analytics in a hardening market, how to handle weather-related risks that are typically included in captive risk portfolios, and ways to use and improve reserve analyses for captives.

SIGMA focuses on new, innovative ways to incorporate industry data in the analysis of non-traditional emerging risks. These risks are often low frequency and high severity in nature with limited unique historical data, necessitating a creative approach to actuarial analytics.

The response to these innovative efforts has been strong. Our webinars have had over 500 registrants, and feedback on our updated software tools and windstorm research is overwhelmingly positive.

In all capacities, we pride ourselves on the fact that we produce easy-to-understand material that is free of actuarial jargon. We believe that, in order to navigate challenges, clients must first understand the analytics and approaches they already have in place.

Beyond the annual actuarial reports required by regulators, we would like to see the captive insurance industry integrate analytical solutions into more of its ongoing decision-making strategies. To help create such an environment, SIGMA staff assist clients in understanding how captives can be used as a long-term strategy, as opposed to a short-term solution to various market conditions. Our approach gives clients access to educational resources, consulting, and software tools to navigate the challenges of creating a sustainable, long-term approach to captives.

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

Ultimately, the captive insurance industry should be focused on continuous improvement through experience and innovation, and these aspects can be produced only by professionals who’ve spent a substantial amount of time within the evolving captives landscape. By guiding our clients through the analytical steps necessary for a long-term captive, our hope is that we can play a small role in building an increasingly innovative and adaptive industry.

The actuarial profession has ongoing continuing education requirements that help maintain compliance with current and emerging issues, including regulatory changes. Alongside that, members of our staff with captive-specific expertise attend continuing education seminars on numerous captive regulation topics.

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

In the captive area, SIGMA completes actuarial reports and feasibility studies, and we also serve as a reviewing actuarial firm for multiple domiciles. The regulation takes many forms and extends beyond domicile regulators to bodies such as the NAIC, the Internal Revenue Service, and various accounting regulations. Some domiciles defer to other regulatory entities on certain policies. SIGMA attempts to have ongoing dialogue with numerous regulators to maintain compliance.

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

We began a four-part educational series in April that helped firms analytically evaluate potential impacts. The topics included considerations for companies with closed or limited operations, detecting early trends with lag analytics, assessing changes to loss development factors, and using actuarial reports prior to year-end.

We have also seen a significant increase in interest in captives formation due to the hardening market. Since the state of the market has been exacerbated by the pandemic, firms are beginning to explore alternative risk transfer options. While the overall analytical work has increased, we have also spent significant time developing educational resources for companies considering captive insurer formation.

Companies with retained liabilities are rightfully concerned about the approaching year-end and how the pandemic will affect their overall balance sheet position. This has led to a significant increase in consulting support directly related to the evaluation of underlying exposures and potential claims in the current year.

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 could help a captive in the evaluation of various parametric wind and property deductible buydown products. Parametric policies can be challenging because the structure and trigger may change at each policy expiration, and the underlying risk may be difficult to analyse.

Reputational risk, which emerged relatively recently, can be also difficult to analyse because there seems to be wide industry variance on the policy structure, triggers, and payout formulas. Since the risk revolves around company-specific issues that might lead to crises and reputational harm, one must spend a considerable amount of time discussing the details that could surround these events.

Similarly, the D&O risk is challenging given the lack of a clear exposure base and rapidly increasing market rates. SIGMA has been involved in several other non-traditional or emerging risks, such as flood, equipment breakdown, bug manifestations, and shipbuilding risks. Each presents its own unique challenges requiring highly specific and creative solutions.

The most common factors we see focus on captive funding and capitalisation. Captive owners sometimes 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.

Additionally, adverse scenarios may indicate that a captive is not able to handle specific events. If the metrics at the adverse level indicate additional funding requirements, and the parent is unwilling or unable to take on that scenario, then a captive is not a viable choice.