Guy Carpenter’s Ken Vincent Discusses How Captives Help with Reinsurance Flexibility

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In this article from Business Insurance, Guy Carpenter’s Ken Vincent, Managing Director, addresses how insurers in catastrophe-exposed states can use captives to help soften the blow of higher rates and attachment points. Ken joined other industry experts at a panel session of the World Captive Forum in Orlando, Florida.

The property catastrophe reinsurance market turned hard 2 years ago, with prices rising 50% since then, which prompted insurers that had used captives in the past to use them again and generated interest in captives by insurers that had not used them, Ken explained.

Along with raising rates, reinsurers increased attachment points, limiting cedents’ options on lower layers of coverage, and carved various perils into separate coverages, he explained.

In addition to less coverage, “the ability of primary insurers to make an underwriting profit was in jeopardy because of the exponential increase in reinsurance coverage,” Ken said. At the same time, insurers faced pressure from regulators to raise more capital to offset the reduction in protection, he continued.