Risk pools look good in a tight market but take time, work
Article Abstract:
The rising costs of corporate insurance policies have encouraged companies to form risk pools. Risk pools are legal under the 1986 amendments to the 1981 Risk Retention Act. Pools are formed by two or more companies that meet the following criteria: (1) the group members must be licensed within one state, (2) the group must submit an organization charter and a feasibility study to the state insurance commissioner, and (3) the group must provide similar documentation in each state in which it operates. Risk pools offer savings over more conventional forms of insurance. There are also additional costs incurred when pooling risk: keeping all member companies informed of the financial status of the pool, operating the pool, and assessing annual premiums. Risk pools make good economic sense when the insurance market is tight. Changes in the market will affect the viability of risk pools. Risk pools discussed include ACE, Trenwick, and CIRCL.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1987
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When to form your own captive insurance company
Article Abstract:
Forming a captive insurance company creates a funded reserve to cover large unexpected losses, provides access to the reinsurance market, and creates investment income. Interested corporations should develop actuarial loss projections based on historical data, before forming a captive insurance company. The economic feasibility of forming a captive, the tax benefits and liabilities related to captive company formation, and the risks involved should also be considered. Approximately 2,000 captive insurance companies have been formed in the US. Corporations that should not form captive companies for insurance purposes are those in which: annual insurance premiums are $500,000 or less; risk exposure is too great; and competent risk managers are not already employed by the corporation.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1987
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Actuarial analysis: key step in captive formation
Article Abstract:
The role of an actuary in the formation of a captive insurance company is to assemble information about coverage, claims data, and risk exposure. These data are used to determine the captive insurance company's: terms and conditions, premiums, capital requirements, and a pro forma financial forecast. The members of a self-insurance group must understand that adequate premiums are needed to pay for anticipated claims. Similarly, adequate capitalization is needed to protect against unexpected or catastrophic losses.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1987
User Contributions:
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