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PMA captive operations combine ease-of-entry with exceptional service,
asset protection, greater decision-making power and the opportunity to
participate in the associated underwriting profit and derived investment
income.
Insuring your business is about finding the
right type of insurance program to maximize your coverage and bolster
your bottom line with services that speak directly to your needs. That's
why alternatives to traditional insurance programs exist. The PMA
Insurance Group offers a full range of alternative risk transfer product
choices, including captives, for clients who want to take the next step
on the continuum of risk-financing options.
At first glance, captives can appear
intricate, complex and difficult to negotiate - but they certainly don't
have to be. The PMA Insurance Group, with over 15 years of experience
writing captives, makes it simple for clients to conduct captive
arrangements. In this issue of Directions, learn more about captive
arrangements, the services that come with a PMA captive, and which
market conditions are ripe for captive formation. Also in this issue,
read how a PMA-carried rent-a-captive arrangement is helping Goodwill
Industries to reduce costs and take more control of how its insurance
works.
HOW CAPTIVES OPERATE
Captives are established insurance products
that take risk on the primary losses of the businesses that own or
belong to the captive. PMA has been structuring both client-owned
captive and rent-a-captive arrangements for over 15 years.
Client-Owned Captives
Client-owned captives are controlled by
their owners, who are the principal beneficiaries, and operate much like
traditional insurance companies. Captives pay losses, perform actuarial
reviews and potentially derive underwriting profits and earn investment
income on the funds held to pay claims. In most cases, the owners
actively participate in decisions influencing the underwriting,
operations and investments that drive their insurance coverage.
Rent-a-Captives
Rent-a-captives are facilities for clients
too small to structure their own single parent captive. They, in
essence, "rent" the surplus of another company by paying a fee. The
rent-a-captive insures the risks of its renters and returns potential
underwriting profit and investment income to them. Claims are handled by
a third-party administrator (TPA). Rent-a-captives are operated as
income-producing ventures for the companies or "renters" who participate
for insurance coverage.
PMA provides coverage in captive arrangements for workers' compensation,
general liability and commercial auto liability lines of insurance. Our
captive unit is part of PMA Risk Management Services (RMS), our business
segment that addresses the risk management needs of larger accounts with
specialized insurance needs. RMS works collaboratively with clients to
help balance loss costs with increased risk assumption in order to
improve their asset protection and financial stability.
Currently, PMA manages written premium for captives insuring a diverse
risk appetite that includes restaurants, non-profits,
colleges/universities and more.
A Captive Market
The insurance industry operates in a
cyclical nature, which is largely dictated by economic conditions.
Typically, soft conditions enable employers to transfer risk at lower
costs. When the market is hard, insurance is generally more difficult to
obtain and comes at a higher price.
So which is the more conducive market for
forming a captive?
Business owners and brokers have often
wondered at what point in the cycle they should consider captive
arrangements. "Something will cause the market to fluctuate," says Jeff
Packard, PMA Captive Manager. "Whether it's another year of hurricanes
or a tumble in the stock market, something will affect capacity. And
when that happens, the more pressing question shifts to how prepared you
are to handle it."
The proven adage of saving for a rainy day is good advice when it comes
to captives. "When capacity is available and reinsurance pricing is
reasonable, the timing is optimal for developing captive programs," adds
Packard. Forming a captive in a soft market enables members to build
leverage more quickly, something that usually takes years to develop. By
the time the market begins to harden, it is too late. When companies
struggle with new strategies to regain profitability, reinsurance
pricing is already on its way up along with primary line premiums. As
the market makes its shift, insurers often enter into re-underwriting
periods during which certain classes of business and certain coverages
become unavailable. Rate adequacy strategies also begin changing
throughout the industry; the end result of which is often higher rates
for exposures. Ultimately, this downturn toward a hard market is an
adverse time to develop a captive or acquire specific and aggregate
reinsurance to protect assets against loss. Once the soft market has
passed, the optimal opportunity to enter into a captive arrangement has
gone with it.
For complete information regarding PMA captive arrangements, contact
Jeff Packard, Captive Manager, Risk Management Services, at
1-800-222-2749, ext. 5280, or via e-mail at jeff_packard@pmagroup.com,
or Janice Marsh, Sr. Underwriting Specialist, at ext. 5277, or via
e-mail at janice_marsh@pmagroup.com.
Fast Facts on PMA and our Captive Capabilities
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We are rated "A-" (Excellent) by A.M. Best
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PMAIC* is licensed in all 50 states, the
District of Columbia and Puerto Rico
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We provide coverage in captives for the
following lines of business: workers' compensation, general liability
and commercial auto liability
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We offer superior claims and risk control
services
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PMA is a seasoned captive provider, writing
captives for over 15 years
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Domiciles in Bermuda and the Cayman Islands
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PMAIC is The PMA Insurance Group's lead
insurance company, Pennsylvania Manufacturer's Association Insurance
Company.
ADVANTAGES
There are several advantages to forming captive arrangements over
selecting more traditional insurance programs. While both options will
afford you quality coverage and service, here are a few of the benefits
unique to captives:
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Reduced impact of market fluctuations within
the traditional insurance system relative to pricing, coverage and
capacity
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A need for increased capacity and
flexibility to afford coverage
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Increased control and influence over
financial risk and total insurance program cost
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Increased capacity to determine terms and
conditions for coverage
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Direct access to reinsurance markets
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Potential to share in any underwriting
profit and investment income
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Ability to control claims utilizing
third-party administration
PMA Captive Classes of Business
While captives aren't for every business, PMA's risk appetite for
captives is varied and diverse. Recent written captives include the
following classes of business:
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Restaurants and Quick-Service Chains
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Contractors and Construction
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Colleges/Universities
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Non-Profit Organizations
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Hospitals/Nursing Homes (workers'
compensation only)
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Manufacturing
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Retail/Wholesale Operations
Captive Support Services
PMA provides a single access point during
the formation process of captive arrangements and offers expert claims,
risk control, financial responsibility and reinsurance support to help
keep the captive operating smoothly and productively. PMA service teams
are local to clients and work collaboratively to provide full-service
insurance solutions that ensure all of your insurance needs are met:
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Managed Care Services
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Risk Control
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Risk Management Information Systems
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Actuarial
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Finance
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Reinsurance
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Legal Contracts
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Underwriting
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Policy Administration
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Claims Services (including investigation,
quality assurance, litigation management and three-point contact)
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Captive Management (including investing
funds and cash flow accounting)
For complete information regarding PMA captive arrangements, contact
Jeff Packard, Captive Manager, Risk Management Services at
1-800-222-2749 ext. 5280 or Janice Marsh, Sr. Underwriting Specialist at
ext. 5277.
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