Captive managers

A light in the darkness

Technology is constantly pushing the boundaries of what is possible, but with increasing opportunities comes increasing choice, which can itself be overwhelming. The value of trusted partners that can help make sense of the endless options available has never been greater, Guy Carpenter’s Rob Collins tells Captive International.

Part of the job description of any broker in 2020 is to field questions about the supposed “disintermediation”. As technology advances apace, the argument goes, buyers can use new systems to find sellers themselves, more cheaply.

Brokers are remnants of a dying age of insurance, living on borrowed time or desperately looking for a purpose to justify their continued existence.

The counter argument is that those same advances of technology have created oceans of data that are overwhelming. With so much information available it has become almost impossible to navigate a path. What is useful may be lost amid the deluge of what is irrelevant or misleading.

“The world is getting riskier and there is more and more data out there which clients need to digest and analyse,” explains Rob Collins, managing director and North American sales leader at Guy Carpenter & Co in Connecticut.

“That only increases our clients’ need for quality independent advice and analytics.”

Collins rejects the argument that brokers are being disintermediated.

“Our role is actually getting stickier and stronger, and our advice is getting more valuable,” he says. That is true for the business as a whole. The evidence for it is easy to find within Guy Carpenter’s captives operation, where business, Collins says, is booming.

“As captives mature so do their liability exposures.”
Rob Collins

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“Our role focuses on providing insights and helping clients navigate an increasingly complex and fast-paced marketplace."

Guy Carpenter works with captives across all stages of their life cycle, from the cradle to the grave. When a prospective captive owner considers launching a captive, and wonders what to do next, Guy Carpenter is on hand to talk about feasibility studies and other first steps.

When a company decides the captive has outlived its usefulness, Guy Carpenter can help close it down.

“We collaborate with numerous captive managers and fronting companies to inform them of the different options and cost structures available and to help them identify a solution that matches their needs,” says Collins.

“Our role focuses on providing insights and helping clients navigate an increasingly complex and fast-paced marketplace.”

Guy Carpenter provides independent advice, analysis and reinsurance solutions to captives, captive managers and policy issuing companies. It works with different types of captives, including single parent captives and groups. Groups have been very popular in recent years as smaller companies have sought more cost-effective ways of securing the benefits enjoyed by larger companies that have had their own captives for years.

“We have seen huge growth in the group captive space in the last 10 years and there is no sign of it slowing down,” says Collins.

“If anything it is accelerating, despite the global recession. Given the hardening market, establishing a captive often makes a lot of sense for well-run businesses.”

As a Marsh & McLennan company, Guy Carpenter has the advantage of being able to access huge amounts of data related to the captive insurance industry from its sister companies within the group. This includes Marsh, one of the biggest captive insurance managers in the world. This data can be leveraged to its clients’ advantage.

“Our relationship with Marsh is a value-add for captives,” says Collins. “For example, within our managing general agent (MGA) client segment many MGAs are now looking to assume risk from their portfolios into captives. A close working relationship with Marsh helps our clients easily and efficiently establish an agency captive solution.”

Legacy business

Collins sees a “tremendous opportunity” for Guy Carpenter in the legacy space, in particular. “As captives mature so do their liability exposures, so we expect to see more business on the legacy side,” explains Collins.

“Right now around 90 percent of the work we do is on the prospective side, but it will be interesting to see how much growth there will be on the retroactive side over the next five years.

“That is where I expect to see the most growth given the maturing of the captives industry.”

Collins continues: “We expect the group captives space in particular will demonstrate strong interest. Older members of the group may have shut down, leaving active members on the hook for their legacy liabilities.

“Many of our captive insurance clients are asking us about legacy transactions at the moment.”

Legacy trades are unusual and complex transactions, notes Collins, in part because they involve three parties, which adds to the logistical challenge of moving deals forward. The challenge is even more acute for captives, he says.

“Working with captives is different from working with commercial insurance companies,” Collins says.

“There are more decision-makers involved in captive insurance transactions, including fronting companies, board members, captive managers and other service providers, who may not engage with legacy transaction frequently.”

Part of Guy Carpenter’s role in legacy deals is to help captives pick from the various different providers available, helping them weigh up the relatively strengths of the different options available.

Collins says: “Choosing a provider depends in part on what the captive is looking to achieve: is it a capital issue or is the captive is looking to terminate prior year liabilities? Different concerns require different solutions.

“Legacy transactions for captives often involve the heavy use of collateral, so captives have to consider the fronting company’s requirements, the counterparty’s liquidity and banking relationships, their legal approach and their willingness to pay claims.

“The size of the transaction and the types of exposure being traded are also factors.”

Again, it all comes back to helping clients make sense of the plethora of options available to them, and finding the right piece of information which may be hard to locate amid the noise.

“It requires a lot of time and patience. The captive needs to fully understand the data, which is where we add value,” says Collins.

“The role of intermediaries in these trades is crucial: we bring actuarial firepower and a robust and independent opinion. We have built analytical models that captives can use to evaluate their reserve risk.”

“We bring actuarial firepower and a robust and independent opinion.”

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