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  • 1. Captives for customer programs Max Reid & David Simpson – GMAC Insurance
  • 2. Agenda
    • Background
    • Suitability and drivers
    • The life cycle of insurance development
    • The GMAC Insurance experience
    • Benefits of customer programs
    • Considerations
    • Summary
  • 3. Background
    • In 2002 General Motors decided that there were sufficient profitable customer programs in its captive that it was worthwhile creating a separate entity to manage the potential
    • By 2007 the new reinsurance company, under GMAC Insurance ownership is writing over $180 million of premium and has $14 million of net income
    • The business has enjoyed a CAGR in excess of 24% and the underwriting experience has allowed GMAC Insurance to develop new insurance initiatives
  • 4. Suitability Questions
    • Do you currently have, or are you in the course of developing customer insurance programs?
    • Likely that you are using a local insurer to underwrite and provide service with perhaps a commission to the company?
    • In the environment of possible commission disclosure (UK, Germany) and capping (Australia and US), how sustainable is the commission?
    • Are you missing out on underwriting profits as well as claims reserves and investment income?
  • 5. Commission/Fee Income from leveraging channel Insurance related sales and administration activity Reinsurance participation in underwriting risk Full underwriting and administration platform Increasing activity and complexity Life Cycle of Customer Programs
  • 6. The GMAC Insurance Experience
    • By 2002 GM had $25 million quota share premium from European customer auto programs reinsured to the captive
    • The potential to grow this business was significant – and to capitalize on the opportunity a new unit was established
    • By 2003 GMAC Insurance had its own class 3 Bermudian reinsurer with General and Long-term licenses focusing on the GM and GMAC customer programs
    • The new segregated accounts company has the added advantage of writing business for affiliate companies in separate cells – which in turn enables amended income flow to the affiliates
  • 7. Process Flow Customer buys vehicle Customer is offered GMAC insurance products Local Insurance Company GMAC Finance Contract GMAC IICL Bermuda Finances vehicle with GMAC Policy and Claims administration GMAC IIS UK Product development, underwriting analysis and benchmarking Consultancy and administrative services Auto Insurance GMAC Life Försäkrings Credit Life Insurance Provided by Provided to Provided to Reinsured to Reinsured by Mandatory in some regions
  • 8. ITALY Masterlease Customer Auto UK Vauxhall Customer Auto Saab Customer Auto Vauxhall Employee Auto Vauxhall Rental SWEDEN Saab 3 Year Auto Opel 3 Year Auto Chevrolet 3 Year Auto Customer Auto GERMANY Opel Customer Auto CHINA GMAC / SGM Buick Auto GMAC Credit Life GMAC Wholesale AUSTRALIA Holden Customer Auto Holden Customer Gap GMAC Credit Life CHILE Chevrolet Auto Credit Life Hospital Cash ECUADOR Credit Life COLOMBIA Credit Life MEXICO GMAC Credit Life VENEZUELA Chevrolet Wholesale Credit Life CANADA RFC Credit Life ARGENTINA Chevrolet Credit Life GMAC LF GMAC Credit Life in 11 EU countries The GMAC Insurance Experience
  • 9. Experience Led Development
    • Following a successful start to the reinsurance operation GMAC Insurance went on to develop:
      • Dedicated team of business development and account management
      • Life insurance company in Europe to design, underwrite and manage the auto finance companies credit life programs
      • Sufficient experience and skill in auto and life proportional reinsurance to begin participating in non-GM and GMAC programs
  • 10. Benefits of Customer Program Reinsurance
    • Ceding company – likely to be a major player, risk participation demonstrates real commitment to the program and enables the cedant to invest with a long term outlook
    • Customer ownership – often seen as crucial to a program, but how much more valuable when augmented with actual underwriting experience?
    • Depending on your tax situation, profits may build up in a low tax environment
    • Spread of risk reduces your dependence on captive risks
    • Your participation is not only in limited up-front commission, but rather in the full spectrum of profit opportunities:
  • 11. Profit Opportunities Key: Incremental Captive profit Market / Customer Price Sales Commission – Market driven Corporate Commission Based on market size, cost of access to channel and brand access. Insurer expenses Reinsurer expenses (“ceding fees”) Insurer profit Reinsurance profit Losses Losses 100% 15% 15% 15% 5% 50% 50% 50% quota share Margin on Loss Cost
  • 12. Considerations
    • How much appetite do you have for risk – auto TPL can be unlimited or volatile in many countries – current XOL attachment may leave you with a high exposure
    • How much resource do you have available? A proportional reinsurance program should be manageable by your current staff / manager, but if you are seeking scale, resource will be required
    • Many programs have a high GWP, with resultant capital requirements – do you have sufficient or excess capital ?
  • 13. Summary
    • Using captives for customer programs has proven to be very profitable
    • Often it’s a win-win for the cedant and reinsurer that benefits the corporation’s customers
    • Risk participation may well lead to a wider relationship with your insurance partners
    • You will need to consider resource and capital constraints
    • Ultimately you are likely to be richer for the experience – few organizations that have entered into customer program reinsurance have looked back…