The long-term successful operation of a captive is dependent on the captive’s management continually monitoring and assessing the adequacy of their capital position and the captive’s ability to withstand unexpected losses. To assist with this assessment, actuarial risk analysis is key in providing stress testing and financial modelling.

In the first in our series, "What’s the Right Level of Retention?", several methods were outlined for considering the level of risk your organization takes on in self-insured retentions.

Retentions, however, can be structured in different ways. Based on a measured understanding of your firm’s risk appetite, alternative retention designs should be considered in insurance negotiations.

Companies running defined benefit pension schemes effectively self-insure their obligations to pay future pensions. As schemes mature and become better funded, a common aim is to discharge pensions risk by insuring.

Typically, this means buying out the scheme’s liabilities by purchasing a bulk annuity from an insurance company. While this enables the pension obligations to be passed to the insurance company, in many markets globally this is relatively expensive.

An alternative approach, which avoids this external insurance cost and allows surplus pension assets to be paid back to the sponsoring employer, is to self-insure through the employer’s own captive.

For a captive to achieve lasting success it must ensure that it is adequately funded. Its managers must be able to determine the suitable insurance premiums to charge their policyholders for the coverages provided while satisfying regulatory requirements.

A captive’s actuary provides captive management with claims forecasting through actuarial risk analysis – information vital for discussions of funding and for optimizing program structure. These core principles are applicable for both single parent and group captives.

Insurers are increasingly asking for Personally Identifiable Information (PII) and Personal Health Information (PHI) record counts as part of the underwriting process and it is important for insureds to have made a good faith effort to identify the number of records and provide a reasoned and defensible estimate of the exposure.

Insurers want to understand the record count from the perspective of the costs that will be incurred (and that they will be reimbursing) as the result of a breach. This means providing a count not only of employee data, but of PII and PHI records entrusted to the firm by clients.

About Aon

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