4CORNERSTONES OF CAPTIVE SUCCESS · CORNERSTONES OF CAPTIVE SUCCESS AN ALTERNATIVE RISK PROGRAM FOR...

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4 CORNERSTONES OF CAPTIVE SUCCESS

AN ALTERNATIVE RISK PROGRAMFOR THOSE WHO WANT CONTROL

Danny BadovinacCaptive Development Coordinator

March 22, 2017

2

FOUR CORNERSTONES OF CAPTIVE SUCCESS

AN ALTERNATIVEGIVING YOU CONTROL

RETURN OF UNDERWRITING

PROFITS

DEDICATION TOSAFETY

CONTROL OVER YOUR CLAIMS

3

C&B CAPTIVE CREDENTIALS

• 7 Member-Owned Group Captives since 1993

• Currently over 220 members

• More than $175 million of premium

• Over $119,000,000 in dividends returned

• 99% Retention

• Administer the two largest transportation captives in the world

• Expert claims administration

• Proven safety services

• Network of resources

4

AN ALTERNATIVE RISK SOLUTION GIVING YOU CONTROL

RETURN OF UNDERWRITING

PROFITS

DEDICATION TOSAFETY

CONTROL OVER YOUR CLAIMS

AN ALTERNATIVEGIVING YOU CONTROL

THE STANDARD MARKET DILEMMA

6

THE STANDARD MARKET DILEMMA – BETTER OFF SELF-INSURING?

50% historical loss ratio = Insurance Company Profit

24%

194%

14%

29%

15%

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

4th Prior 3rd Prior 2nd Prior 1st Prior Current Year

Premiums vs. Losses

Premium

Losses

Loss Ratio

7

Best-in-class companies are leaving the standard market!

What does this mean for those who remain?

1. Pooled with the worse performing companies

2. At the mercy of market swings

3. Increased insurance costs

4. Loss of control

REMAINING INSURANCE POOL

THE STANDARD MARKET DILEMMA – ADVERSE SELECTION

BEST-IN-CLASS

8

10

9%

11

0%

11

9%

11

0%

11

3%

11

0%

10

8%

10

4%

11

0% 1

12

%

11

1%

12

2%

11

0%

10

2%

10

3%

10

5%

91

%

94

%

10

4%

99

%

10

2%

10

8%

10

4%

95

%

94

%

94

%

97

% 98

%

90%

95%

100%

105%

110%

115%

120%

125%

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

20

15E

201

6F

201

7F

Commercial Lines Combined Ratio

THE STANDARD MARKET DILEMMA – STABILITY?

9

WHAT LIES AHEAD? PROFITABILITY PEAKS & TROUGHS

-5%

0%

5%

10%

15%

20%

197

5

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

2016

*

Ret

urn

on

Eq

uit

y

P&C Return on Equity1977: 19.0%

1987: 17.3%

1997: 11.6%2006: 12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%1975: 2.4% 2011: 4.7%

10

WHAT LIES AHEAD? DECREASING INVESTMENT YIELDS

4.5%

4.2%

4.0%

3.8%3.7%

3.8%

3.6%

3.4%

3.6%

3.1%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016P

P&C Net Investment Yield

11

WHAT LIES AHEAD? COMBINED RATIO – AUTO LIABILITY

11

2.1

%

11

2.0

%

11

3.0

% 11

5.9

%

11

8.1

%

11

5.7

%

11

6.2

%

10

2.7

%

95

.2%

92

.9%

92

.1%

92

.4%

94

.1% 9

6.8

% 99

.1%

97

.8%

10

3.4

% 10

6.8

%

10

6.7

%

10

3.4

% 10

6.6

%

10

8.2

%

10

8.8

%

90%

95%

100%

105%

110%

115%

120%

125%

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

2015

E

20

16F

20

17F

Commercial Auto Combined Ratio

BEATING THE STANDARD MARKET

IN A GROUP CAPTIVE

13

HOW DO YOU BEAT THE WAVES OF THE STANDARD MARKET?

Buy Less Insurance

1. Self-Insure

2. Large Deductible

3. Single Parent Captive

4. GROUP CAPTIVES

14

BUYING LESS INSURANCE IN A GROUP CAPTIVE

Statutory Workers’

Compensation

General

Liability

Auto Liability &

Physical Damage

CAPTIVE RETENTION

$1,000,000

$300,000

$0

REI

NSU

RA

NC

ELO

SS

FUN

DS

15

THE PHILOSOPHY OF THE CAPTIVE RETENTION

RETAIN frequency type losses that are more predictable

Frequency type losses can be controlled though:

• Effective Safety Program

• Effective Claims Management

TRANSFER severity type losses that are less predictable

Severity type losses can be controlled though:

• Reinsurance Protection

• Group Risk Sharing

16

OPERATING COSTS

LOSS FUNDS

OPERATING COSTS

•Reinsurance

•Claims handling fees

•Broker commissions

•Other administrative expenses

LOSS FUNDS

•Pay for claims within the captive

retention

•Opportunity to profit

•Actuarially calculated based on

your historical losses

CAPTIVE RETENTION: ABILITY TO REDUCE INSURANCE COSTS

17

CAPTIVE RETENTION: ABILITY TO REDUCE INSURANCE COSTS

$26.8

$37.4

$50.2

$62.0

$73.8

$85.0

$94.7

$103.9

$116.8

$119,000,000

$0

$20

$40

$60

$80

$100

$120

$140

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s

Cumulative Dividend History(Last 10 Years)

18

What does this mean for captive members?

1. Pooled with best-in-class companies

2. Group purchasing power

3. Pricing stability

4. Greater control

FAVORABLE SELECTION – GROUP PURCHASING POWER

BEST-IN-CLASS

REMAINING INSURANCE POOL

19

IS A CAPTIVE RIGHT FOR YOU?

• Is your company stuck in the Standard Market

Dilemma?

• Do you realize there is a better way of

purchasing insurance?

• Do you want to join a group of best-in-class

companies and take back control?

IF THE ANSWER IS YES, JOIN THE 220+

CAPTIVE MEMBERS WHO HAVE

ALREADY TAKEN CONTROL OF THEIR

INSURANCE DESTINY WITH

COTTINGHAM & BUTLER.0

25

50

75

100

125

150

175

200

225

2009 2010 2011 2012 2013 2014 2015 2016

C&B CAPTIVE MEMBERS

20

FOUR CORNERSTONES OF CAPTIVE SUCCESS

AN ALTERNATIVEGIVING YOU CONTROL

RETURN OF UNDERWRITING

PROFITS

DEDICATION TOSAFETY

CONTROL OVER YOUR CLAIMS

21

DANNY BADOVINACCaptive Development Coordinator

dbadovinac@cottinghambutler.com563-587-5547

QUESTIONS?

2017 Captive Webinar Series: The Four Cornerstones of Captive Success

• May 10 – Take Control Over Your Claims

• July 12 – Group Captive 101

• September 13 – A Continuous Dedication to Safety

• November 8 – Reduce Your Insurance Spend