==== ====A great way to provide group health insurance to 50 or more employees!http://www.captiveinsurance.info/Health/health.html==== ====The insurance agent has been given very little exposure to and education in the world ofreinsurance. Most agents only become aware of reinsurance when an insurance companyunderwriter tells the agent that they cannot write that risk because our insurance companys treatyreinsurance agreements prevent us from writing that type of business.Since reinsurers over the years have been the traditional risk-taking company, their influence indetermining underwriting philosophy for primary insurers has grown significantly. Many reinsurerstoday, because they are taking a larger amount of exposure on a particular insurance companysindividual risk, now dictate the primary pricing, the amount of the deductible, the amount of thecredit or debit. Reinsurers now have to know a great deal more about the primary insurancebusiness.The agent should consider the purchase of a reinsurance program for its agent-owned captiveinsurance company. Many of the approaches to buying reinsurance are similar to what atraditional insurance company uses. The agent needs to be familiar with the various types ofreinsurance:1.Quota Share Reinsurance2.Excess of Loss Reinsurance3.Catastrophic Reinsurance4.Aggregate Excess of Loss Reinsurance5.Stop Loss Reinsurance6.Finite Risk ReinsuranceAlthough the capital requirements for starting agent-owned captive insurance companies,particularly those in the offshore domiciles, are comparatively small, careful consideration shouldbe paid to the structure of a comprehensive reinsurance program. Gone are the days whenaggregate stop loss reinsurance could be easily ascertained to guarantee underwriting profits forthe agent-owned captive.Bearing this in mind, the net retention of the agent-owned captive should be compared to itsfinancial structure and the agent owners risk taking philosophy. Most agent-owned captiveinsurance companies operating today have too great a new retention when contrasted withtraditional insurance companies, and also taking into consideration their financial structure.
Whether the agent-owned captive purchases only quota share reinsurance or uses a combinationof several types of treaty reinsurance agreements, the reinsurance program must be monitoredand consistently evaluated. The degree of difficulty increases dramatically when designing areinsurance program for a newly formed agent-owned captive insurance company.Reinsuring the Policy-Issuing Companywith Your Agent-Owned CaptiveA policy-issuing arrangement in your agency-whether it be a retail agency, wholesale agency, ormanaging general agency-is when a policy is issued by a licensed property/casualty insurancecompany, whether admitted or non-admitted. Then it is reinsured up to 100% by the traditionalreinsurance company market that would include the agent-owned captive insurance company.This type of arrangement is sometimes referred to as "fronting" and is almost always used whenthe agent has formed an agent-owned captive.The policy-issuing company is paid a "fronting fee," and is reinsured 100%. Someproperty/casualty insurance companies have had as their franchise model offering their "A" ratedcarrier as a "frontier," thus transferring underwriting risk for financial risk. Fronting companies mustconsider state premium takes, residual mods, government schemes and assessments, and that iswhy the agent needs to be trained in negotiating a fronting fee. Experience with this type of feeshows that the pure profit margin on a fronting fee can vary from 3% to 7.5% depending upon thefronting insurer.For example: An agent-owned captive insurance company operating in the Florida restaurantinsurance marketplace reinsures the first $75,000 of underwriting loss behind the policy-issuingcompany. In addition, the reinsurer also owned by the same financial group that the policy-issuingbelongs to, writes the excess of loss reinsurance above $75,000 up to $500,000, at a rate of17.5% of GNWPI. The excess of $500,000 up to $1,000,000 of limit for the restaurant program hasanother rate, as a percentage of gross net written premium income. The reinsurer is a directwriting reinsurer, and negotiates its excess of loss treaty reinsurance agreement directly with thepolicy-issuing insurance company, since they also have other treaty reinsurance agreements inplace with each other, none of which has to do with the agent-owned captive insurance company.To have a successful agent-owned captive insurance company, the agent has to understand thenegotiating process when buying reinsurance either in the direct reinsurance market or throughthe reinsurance intermediary market. The agent will also get a better understanding why theunderwriting cycles exist in the property/casualty insurance industry, and be able to takeadvantage of these underwriting cycles. When policy-issuing insurance companies take very littleunderwriting risk, and the actual underwriting risk is transferred to the traditional reinsurancemarket (as well as the agent-owned captive insurance company), the agent will begin to need tonegotiate with reinsurers.Using Quota Share Reinsurance ProvidedOnly by the Agent-Owned CaptiveHere is another example: The Cayman Island agent-owned captive insurance company originallystarted to write horse mortality insurance, and was capitalized substantially by a bank, using the
collateral of the agency. On the basis of this substantial capitalization, the agent-owned captivewas able to write 100% of the quota share reinsurance of the policy-issuing insurance company.Policies originally written in the agency were issued in the policy-issuing insurance company,100% reinsured to the agent-owned captive, who in turn purchased an outgoing going reinsuranceprogram, consisting of a combination of quota share reinsurance and excess of loss reinsurance.The accumulation of profits in the Cayman Island agent-owned captive insurance company wasused to purchase a "shell" property/casualty insurance company which went on to be an "A" ratedspecialty niche program insurance company after several stock offerings.ConclusionThe owner of a retail insurance agency (i.e., program administrator) the owner of a wholesale,excess and surplus lines insurance agency, and/or the owner of a managing general agency needto explore the feasibility of implementing an agent-owned captive insurance company. Recapturinginvestment income and underwriting profits gives the agent-owner significant returns oninvestment.About this AuthorbyAndy Barile, CEOAndrew Barile Consulting Corporation, Inc.Rancho Santa Fe, California 92067http://www.abarileconsult.comAndrew Barile Consulting Corporation, Inc.Insurance and Reinsurance ConsultantsAndrew J. Barile, MBA, CPCUPresident / CEOP.O. Box 9580 Â• Rancho Santa Fe, CA firstname.lastname@example.orgTel: 858-759-5039 Â• Cell: 619-507-0354 Â• Fax: 858-759-8436http://www.abarileconsult.comArticle Source:http://EzineArticles.com/?expert=Andrew_Barile
==== ====A great way to provide group health insurance to 50 or more employees!http://www.captiveinsurance.info/Health/health.html==== ====