Aug 2008 Financial News

Sagicor, CaribRM building a market for 'captives'

Aug 15, 2008

Two regional outfits that provide insurance risk analyses and related back-office services to so-called captive insurance companies are pitching for business in Jamaica, telling large local firms that it is likely to be more cost effective if they shoulder their own risks rather than pay premiums to traditional insurance companies.

"... If companies are paying a couple of million dollars in premium every year in insurance programmes, then there is a good chance that the captive is going to be cost benefit to them, just from a purely financial perspective," Dr Simon Young, the CEO, Caribbean Risk Managers (CariRM), told the Financial Gleaner in an interview.

It was the same message that Young, as well as officials of Sagicor Insurance Insurance Managers, a subsidiary of the big insurance group Sagicor, was carrying to Jamaican company bosses at a seminar in Kingston, Thursday.

Unlike regular players in the insurance market, captives do not go out seeking business from all and sundry, then share the underwriting risks with mostly external reinsurers.

Instead, big firms, which pay large premiums, may decide to underwrite their own risks through companies they establish themselves, hence the term captives.

In the process, the company saves some of the underwriting commission that is built into its premium payments.

"It is as if you are paying the premium directly to the reinsurer, instead of to the insurer who takes a commission," Young explained.

System not alien

This not a system that is alien to the Jamaican market, although its use may not be widespread. In a early 1990s, a handful of large firms here established captives.

"Of the top companies in Jamaica, probably about five per cent to 10 per cent are using captive right now," Young said.

According to Young, by going to the route of captive insurance, a company could save between 15 per cent and 20 per cent on its insurance costs annually, but that is assuming it pays out a hefty premium - say US$1.5 million or more.

If a company finds such an approach useful, this is where Caribbean Risk Managers Limited (CaribRM) and Sagicor Insurance Managers Limited come in.

The former will help such a firm do its risk and actuarial analyses, while the latter will help it establish its captive in an offshore environment like the Cayman Islands, then conduct all of the captive's backroom operations.

"We do risk assessment, surveys if required," said Young. "For example, in the case of major industrial facilities (we look) to see where the risks are, risk modelling, looking for cost-saving out of the insurance you buy if the company is multi-island."

Actuarial services

"We also offer actuarial services - looking at the loss history, see where heavy and light losses are and use all these tools to help structure a risk transfer programme that is more cost effective," said Young.



Source:
The Jamaica Gleaner
Friday August 15, 2008
http://www.jamaica-gleaner.com/gleaner/20080815/business/business6.html