Now you Have a Captive What do you Do

Now you have a captive, what you do? 17 June 2008, Tuesday Speakers Panellists: Traver Alexander, Research Officer, Bermuda Monetary Authority (BMA) Brad Adderley, Partner, Insurance Team, Appleby Gina Smith, Actuarial Services, Bermuda Monetary Authority (BMA) William Noonan, Vice President, Risk Management, Structure Tone, Inc Moderator: Khim Chia, Assistant Vice President, Business Development Marsh Captive Solutions - Bermuda Agenda Overview of Bermuda Captive Market – BMA Review Ongoing Compliance Actuarial Report: What is BMA looking for? Case Study:  Now I have a captive, what I do?  Challenges faced by Risk Manager  If I can start all over again, would I it differently? Overview of Bermuda Captive Market Traver Alexander, Research Officer Bermuda Monetary Authority (BMA) talexander@bma.bm Sources: • Statutory Financial Returns • Annual Market Survey on Captives Administered jointly by the BMA and BIMA, the Bermuda Insurance Managers Association * Preliminary figures for year-end 2007 • Gross Written Premiums a) Rates of Retention b) Percentage of Business Assumed c) Geographical Location of Risk • Types of Insurance Coverage a) Main Property Lines of Business b) Main Casualty Lines of Business • Asset Composition • Class Captives Single parent captives insuring only the risk of that parent or affiliate • Class Captives Single parent or multi-owner captives with allowance to insure 3rd party risk up to 20% of GWP • Class Captives Captives with allowance to insure 3rd party risk over 20% of GWP Actuarial Considerations On-Sites and Compliance • Provide on-going support to supervisory teams • Captive Manager On-Site Programme • Broader On-site Programme – Start-up assessments of newly licensed entities – On-going site assessments of mature companies • Evaluate Adequacy of technical provisions including loss reserve levels, unearned premium provisions, premium deficiency reserves and economic capital levels Actuarial Considerations Run-Off & Restoration • Provide support to Restoration & RunOff team • Policyholder protection is foremost priority • Evaluation of suitability of valuation methods for technical provisions and other balance sheet items Actuarial Services Role Industry Consultation • BMA – continuous review and enhancement of framework • Industry consultation critical to regulatory development process • Recent consultations – Financial guarantee valuation of liabilities – Internal capital models An Owner’s View Now You Have a Captive, What Do You Do? William B Noonan, CRIS Vice President – Risk Management Structure Tone, Inc Risk Manager’s Checklist • Captive Business Plan • Captive Administrator • Legal / Regulatory • Parent Company Executive Management • Finance / Accounting / Audit / Tax • Expectations • Insurance Carriers • New Programs For Your Captive Business Plan • Read your Business Plan again (even if for the 100 th time) • Read your Feasibility Study again • Do the above at intervals (90 Days, Months, a year after being approved) • Are you sticking to your Business Plan? • Are you doing what you told the BMA you planed to do? Captive Administrator • Selecting the right team that fits your business and your Risk Management team • Reporting, does it work for your company and meet your needs? • Check your ego (My Ego) An administrators “Gold” is there experience across all facets of a captive Take advantage of their “Lessons Learned” Legal / Regulatory • Does your Business plan match your license? • Making sure all legal partners understand your Business Plan and Feasibility Study (Captive lawyer, Parent Company General Counsel, Outside Counsel, Tax Counsel) • Making sure everyone is working off the same page and plan! Parent Company Executive Management • Do they fully understand the Business Plan? • After you form your Captive, have key members read the Business Plan and Feasibility study again (They may not remember what was decided a year ago) • Make sure they understand how the Captive may change “cash flow” requirements at your annual renewal Finance • Have all Financial Reports been changed to report on Captive performance inside your organization • 953 D Election, are your auditors on the same page as you? • Have you looked at all possible exposures and cash flow impacts as a result of owning a captive? • Has your organization developed a plan for any new “cash flow” requirements or the changes compared with past requirements Expectations (Parent Company) • Resist the temptation to change your Business Plan or speed it up • Stay the course, and speak up Make sure all those who propose change are familiar with the Business Plan and Feasibility Study, or re-acquaint them with both • Be on the watch for the tendency of others to believe that all risk issues and exposures can be solved with the captive Insurance Carriers • Once your captive is formed, make sure you hold a face to face meeting to go over your future plans • Make sure your underwriter understands the changes and differences now that you own a captive (Don’t think they know just because they’re an underwriter) • Carrier “Credit and Captive Departments” Make sure you fully understand their rules and guidelines New Programs • Are they in your Business Plan, and on the same time line as your Business Plan • Does the program make sense for your Captive? • Due diligence on the new program • Make sure Legal, Finance, and Tax implications have been studied • Does your Administrator have experience with this type of program in a captive? Closing Comments • Do not forget to use good old “Common Sense” • The common theme in all the advice I have received from successful captive owners is the age old advise of “Walk Before You Run” and “Crawl Before You Walk” Thank You ... Bermuda Captive Market – BMA Review Ongoing Compliance Actuarial Report: What is BMA looking for? Case Study:  Now I have a captive, what I do?  Challenges faced by Risk Manager  If I can start...Speakers Panellists: Traver Alexander, Research Officer, Bermuda Monetary Authority (BMA) Brad Adderley, Partner, Insurance Team, Appleby Gina Smith, Actuarial Services, Bermuda Monetary Authority... start all over again, would I it differently? Overview of Bermuda Captive Market Traver Alexander, Research Officer Bermuda Monetary Authority (BMA) talexander@bma.bm Sources: • Statutory Financial