BURLINGTON, Vt. – Captive owners need to build long-term relationships with reinsurers that can endure through hard and soft markets, panelists said Wednesday at the Vermont Captive Insurance Association’s 2023 annual conference.
Captives that have diversified business relationships and write multiple risks will be more resilient in the long run and better positioned to leverage reinsurance coverage in a hard market, the experts said.
“The more diversified the risk is in your captive long term, you’re going to be much better served, because you won’t have one loss blow up your captive,” said Steve Bauman, New York-based global programs and captives director, Americas, at Axa XL, a division of Axa SA.
“When the capacity is out there and abundant, you can go for that additional capacity and start to make other relationships that maybe you wouldn’t in a harder market,” he said.
Jeremy Johnson, Chicago-based vice president of global risk at Revantage Corporate Services, a Blackstone Inc. unit, said that after the 1/1 treaty renewals, its broker advised it should expect a “double-double half.”
That meant its deductible limits and premium would double, and it could expect half the capacity, Mr. Johnson said.
By leveraging the reinsurance markets that it had engaged in previous years, it was able to discuss how to best optimize its risk management strategies and use the surplus generated over prior years and “maybe take a greater retention that would bring potentially more capacity to the table,” he said.
When relationships have been established over time, there’s a familiarity, Mr. Johnson said.
Reinsurers view a relationship-based, rather than a transactional-based, reinsurance process as a positive in the captive space, said Chris Ervey, Costa Mesa, California-based executive vice president at BMS Re, the reinsurance unit of London-based specialty insurance broker BMS Group Ltd.
“If you’re dealing with reinsurers that have been working with you over a period of years and they’ve had a profitable relationship, you have a much better chance to weather a bad year, to weather a change in the marketplace and maintain that relationship, especially in harder markets where rates are being pushed across the board,” Mr. Ervey said.
The session was moderated by Ryan Gadapee, shareholder, Primmer Piper Eggleston & Cramer PC, based in Burlington, Vermont.
