Balancing Act

DiscoverRe brings together the fronting, reinsurance and other services essential to the formation of group captives.

Group captives whose members clearly understand upfront what they have to gain, what they have to lose and everyone’s stake, are building a solid foundation for success, says Blaine Bontempo, president of Discover Re’s Specialty Marketing Group. He discussed the science of forming captives with Best’s Review.

BEST’S REVIEW: What are the necessary ingredients to forming a successful group captive?

Bontempo: There’s no single ingredient that spells success; it’s a balancing of the right ingredients--having a true champion for the captive formation, and ensuring transparency between all of the involved parties to the captive. Those are the two most dominant ingredients followed by developing a useful business plan and selecting the best insurance professionals for each captive.

BR: What do you mean by a true champion?

Bontempo: No captive that I’ve seen has been launched without a champion who’s driving the formation. It’s the person with skin in the game. They fully understand the risk-to-reward ratio before they enter the market, and they quickly realize that loss control is what it is all about. If they can get risk management in place and prevent accidents, they are not just managing the captive smartly; they could also be saving lives. It makes good business sense to build a strong risk management program. That, in turn, helps owners to run their primary business knowing they have financially sound insurance and risk management behind them. Really good captives come from really good business people who “get it.”

BR: How does transparency work with a group captive?

Bontempo: Right off the bat, the consultants, the captive managers, and the brokers--everyone who is participating in the captive formation--know that it’s important that all forms of remuneration are disclosed. Fully understanding these issues enables an alignment of interests and a better understanding of fee for services, as well as the financial consequences of the sharing of losses. The formulas for risk sharing among captive members are usually black and white so that the members truly understand that, if there is a loss that’s a certain size, company “A” will pay for it, up to a certain limit, and then all members share in that loss. Transparency also means that, from the outset, members must be fully aware of the financial consequences of extricating as a member.

BR: What role do the insurance professionals play in forming a successful captive?

Bontempo: I have yet to see a captive get off the ground that has not made it if its management went through the process of selecting the right insurance professionals and had a good champion. The professionals that surround the champion and the founding group know how to define the coverages being sought, select the appropriate funding, define the pricing terms and conditions and put an actuarial study together to get jurisdictional approval. Formation routines oftentimes enable Discover Re to be invited to interact with professionals and owners before setting forth a proposal offering fronting and reinsurance. Companies like Discover Re offer the expertise to thoughtfully solve problems and the flexibility and a willingness to listen and adjust to the uniqueness of terms and conditions of each situation. Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13