Download - CICA Fronting Survey Results
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Underwriting support provided by:
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0
10
20
30
40
50
60
70
SingleParent
RRG AssociationSponsored Agency IndustrialInsured
Reciprocal Seg. Cell
2007 2006 2005 2004
0 20 40 60 80 100
USA
OutsideUSA
20072006
0
5
10
15
20
25
30
35
40
45
< 1 Year 1-5 Years 6-10 Years > 10 Years
0 20 40 60 80 100
Yes
No
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Underwriting support provided by:
0%
10%20%
30%
40%50%
60%
70%
80%90%
100%
Single Parent Group
% o
f Res
pond
ents
High-frequency, Low-severityLow-frequency, High-severityProperty (CAT)
Property (non-CAT)
Short-tail Casualty
Long-tail Casualty
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Underwriting support provided by:
0%
20%
40%
60%
80%
100%
Single Parent Group
% o
f Res
pond
ents
Large (>$25m capital & suprlus)Medium ($10-25m capital & surplus)Small (<$10m capital & surplus)
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Underwriting support provided by:
0%10%20%30%40%50%60%70%80%90%
100%
Single Parent Group
% o
f Res
pond
ents
<1:1 1:1 2:1 3:1 4:1 5:1 >5:1
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Underwriting support provided by:
0%10%20%30%40%50%60%70%80%90%
100%
Single Parent Group
% o
f Res
pond
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<3:1 3:1 4:1 5:1 >5:1
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Underwriting support provided by:
0%10%20%30%40%50%60%70%80%90%
100%
Single Parent Group
% o
f Res
pond
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95th Percentile90th Percentile85th Percentile80th Percentile75th Percentile50% (Expected)
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Underwriting support provided by:
0%10%20%30%40%50%60%70%80%90%
100%
Single Parent Group
% o
f Res
pond
ents
=<10% 10-25% 26-50% 51-100% >100%
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Underwriting support provided by:
0%10%20%30%40%50%60%70%80%90%
100%
Single Parent Group
% o
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=<10% 11-15% 16-20% 21-25% >25%
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Underwriting support provided by:
0%
20%
40%
60%
80%
100%
Single Parent Group
% o
f Res
pond
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=<45% 46-55% 56-65% 66-75%76-85% 86-95% 96-105% >105%
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Underwriting support provided by:
0%
20%
40%
60%
80%
100%
Single Parent Group
% o
f Res
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=<45% 46-55% 56-65% 66-75%76-85% 86-95% 96-105% >105%
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Underwriting support provided by:
0%
20%
40%
60%
80%
100%
Single Parent Group
% o
f Res
pond
ents
=<3% 3-4% 4-5% 5-6% >6%
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0
5
10
15
20
25
30
35
40
< $200K $200K-$500K $500K-$1M >$1M Not Fronted
2007 2006 2005 2004
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0
10
20
30
40
50
60
70
< 5% 6%-10% 11%-15% 16%-20% > 20% N/A
2007 2006 2005 2004
Underwriting support provided by:
0
10
20
30
40
50
60
70
80
% w
ho
sel
ecte
d c
ho
ice
* In 2006 Policy Issuance and Administration were one category
0
10
20
30
40
50
60
70
Yes No
% w
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2007 2006
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70
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2007 2006
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0
10
20
30
40
50
60
70
80
90
100
Adm
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Tax
Glo
bal
Str
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Reg
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tory
Mar
ketin
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Adm
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Oth
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% w
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2007 2006 2005 2004
Underwriting support provided by:
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0
10
20
30
40
50
AC
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Win
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Oth
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2007 2006 2005
% w
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choi
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Underwriting support provided by:
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0 10 20 30 40 50 60 70
Not Important At All
Not Very Important
Somewhat Important
Important
Very Important
2007
2006
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0
1
2
3
4
5
Claims Handling Marketing Policy Language Underwriting
2007 2006 2005 2004
1 = Most Important, 5 = Not Important
Underwriting support provided by:
0
1
2
3
4
5
Claims Handling Marketing Policy Language Underwriting
2007 2006 2005 2004
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Underwriting support provided by:
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0
10
20
30
40
50
60
70
80
Expensive Reasonable Inexpensive
2007 2006 2005 2004
0
10
20
30
40
50
60
70
80
Excellent Moderate Low
Price Value
Underwriting support provided by:
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0
10
20
30
40
50
60
70
Decreased Same Increased <5%
Increased 6%-10%
Increased11%-20%
Increased21%-30%
Increased>30%
2007 2006 2005 2004
Underwriting support provided by:
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0
20
40
60
80
100
More Restrictive Same Less Restrictive
2007 2006 2005 2004
Underwriting support provided by:
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0
20
40
60
80
100
120
Yes No
2007 2006 2005 2004
Underwriting support provided by:
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0
15
30
45
60
75
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nt
LO
C/T
rust
Acc
t
Sur
ety/
Tru
stA
cct
Oth
ers
% w
ho
sele
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ch
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2007 2006 2005 2004
Prior to 2007 survey participants were only allowed to select one option on this question.
Underwriting support provided by:
������������*��������
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0
5
10
15
20
25
30
35
40
45
50
Loss Reserve Loss Reserve &UEPR
<100% LossReserve, UEPR
& IBNR
>100% of LossReserve, UEPR
& IBNR
101%-120% lossreserve & UEPR
121%-150% lossreserve & UEPR
>150% lossreserve & UEPR
Other
2007 2006 2005 2004
Underwriting support provided by:
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� Negotiated amount
� Aggregate attachment point
� Negotiated based on loss history
� 112% of actual loss reserve
� Actuarial valuation
� Agg stop
� Policy limits
� 250% of fronts loss pick, outrageous, but that is all I haveavailable
� =Actual Loss Reserve, Unearned Premiums and IBNR
Underwriting support provided by:
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Underwriting support provided by:
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0
10
20
30
40
50
60
70
80
Yes No
2007 2006 2005
0 10 20 30 40 50 60
QS & Agg Stop
QS
XS & Agg Stop
Agg Stop
XS
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Underwriting support provided by:
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0
10
20
30
40
50
60
70
< $200K $200K-$500K $500K-$1M >$1M
2007 2006 2005
Underwriting support provided by:
0
10
20
30
40
50
<5% 6-10% 11-15% 16-20% >20%
2007 2006 2005
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0
10
20
30
40
50
60
70
Premiums notbroken out
<$200,000 $200,001-$500,000
$500,001-$1,000,000
>$1 million
2007 2006
Underwriting support provided by:
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0 10 20 30 40 50 60
> 3%
1-3%
< 1%
Premium NotBroken Out
2007
2006
Underwriting support provided by:
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0
10
20
30
40
50
60
70
Affilia
ted C
aptiv
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eral R
eThe H
artfo
rd ACE
Lexin
gton In
s Co.
Lloyd
s & S
yndica
tes
Munich Re
Swiss Re
Hannover
Re
XL Insu
rance
Zurich
Odysse
y Am
Re
AIGOld
Rep
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Bermuda M
arke
tsOth
ers
2007 2006
Underwriting support provided by:
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� Front� Lloyds� Hudson� Markel, GMAC, AWAC� UHR, Ltd.� Berkley/Liberty/Evanston� Max Re� Tokio Re� Cayman market� Liberty Mutual� Everest Re; Toa Re; General Fidelity Insurance Company (GFIC)� Safety National Casualty Co.
Underwriting support provided by:
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0
10
20
30
40
50
60
70
80
90
Expensive Reasonable Inexpensive
2007 2006 2005
0
10
20
30
40
50
60
70
80
90
Excellent Moderate Low
Price Value
Underwriting support provided by:
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0
10
20
30
40
50
Dec
reas
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30%
Dec
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ed21
-30%
Dec
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-20%
Dec
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10%
Dec
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Incr
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Incr
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d6%
-10%
Incr
ease
d11
%-2
0%
Incr
ease
d21
%-3
0%
Incr
ease
d>3
0%
2007 2006 2005
In the 2005 year all “Decreased” responses are included in the Decreased < 5% category.
Underwriting support provided by:
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0
10
20
30
40
50
60
70
80
90
More Restrictive Same Less Restrictive
2007
Underwriting support provided by:
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0102030405060708090
More ReinsuranceLimits
Same Less ReinsuranceLimits
2007
0
10
20
30
40
50
60
70
80
90
Increase Same Decrease
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Underwriting support provided by:
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Underwriting support provided by:
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0
5
10
15
20
25
30
35
40
45
Reinsu
rance
Securit
y
Frontin
g
Servic
eTax
Other
s
2007 2006 2005 2004
Underwriting support provided by:
� �������������((����*������(�
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� Demonstrating value to parent, year after year (What haveyou done for me lately?)
� Actuarial understanding of my program – IBNR� Investments and Yield� New IRS Proposal
Underwriting support provided by:
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Underwriting support provided by:
����������������������������� ������������������������������������ ������������������������������������ ������������������������������������ �������
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By Majority Exposure
0 5 10 15 20 25 30 35 40 45 50
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-frequency, High-severity
High-frequency, Low-severity
% of Respondents
2007
2006
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
Small (< $10m capital & surplus) Medium ($10-25m capital & surplus) Large (>25m capital & surplus)
2007
2006
Underwriting support provided by:
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• Gauge of insurer’s relativesecurity and ability to take onrisk
• No “correct” premium-to-surplus ratio benchmark forall insurers
• Low values may indicate thata captive is overcapitalized
• Ratio penalizes rate or priceincreases
• Proper benchmark for acaptive will be set by theregulator
2:1 – 5:1Low-frequency,High-severity
Up to 5:1High-frequency,Low-severity
< 1:1Property (CAT)
2:1 – 5:1Property (non-CAT)
2:1 – 5:1Short-tailCasualty
1:1 – 4:1Long-tail Casualty
TRACS Premium-to-Surplus Ratios
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, HighSeverity
High-Frequency, Low-Severity
<1:1 1:1 2:1 3:1 4:1 5:1 >5:1
0% 20% 40% 60% 80% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency,High Severity
High-Frequency,Low-Severity
% of Respondents
2007
2006
Underwriting support provided by:
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• Measures how much theinsurer’s capital & surplusmight be impaired if lossreserves are undervalued
• E.g., if loss reserves areundervalued by 10%, thenexisting capital & surplus isoverstated by 30% in acaptive writing long tailcasualty exposure
4:1Mixed Portfolio
5:1Short-tail Casualty
3:1Long-tail Casualty
TRACS -Loss Reserves-to-Surplus Ratio
Underwriting support provided by:
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0% 20% 40% 60% 80% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, LowSeverity
% of Respondents
<3:1 3:1 4:1 5:1 >5:1
0% 20% 40% 60% 80% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, LowSeverity
2007
2006
Underwriting support provided by:
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• The higher the confidence level, the lower theprobability that actual losses will deviate from thereserves on the captive’s financial statements
• Potential “hidden” surplus
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
50% (Expected) 75th percentile 80th percentile 85th percentile 90th percentile 95th percentile
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006
Underwriting support provided by:
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Implied Surplus Requirement @ $500,000 RetentionRetention-to-Surplus RatioCaptive Type & Exposure
$5,000,000Up to 10%Group captive, broad membershipof small insureds
$2,000,000Up to 25%Group captive, small membershipof midsize insureds
$1,000,000Up to 50%Group captive, small sophisticatedmembership, low-frequencycasualty
$500,000Up to 100%Single-owner, low-frequencycasualty
$250,000200%Single-owner, non-casualty, non-CAT
TRACS Risk Retention-to-Surplus Ratio
• Gauge of the potential effect of a maximum loss from a single event• The lower the ratio the more surplus required – something that is often problematic for captives,
especially group captives• High ratios may require capital calls to cover unfunded liabilities
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
=<10% 10-25% 26-50% 51-100% >100%
0% 20% 40% 60% 80% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006
Underwriting support provided by:
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• Measures how much of each captive premium dollar goesto running the captive
• Typically this ratio should not exceed 25%• Direct-writing captives will have lower expense ratios than
captives that need fronting paper• Single parent captives will have lower expense ratios that
group captives
Underwriting support provided by:
� ��������������������������%�������������&���� ����������� ��� ������������������� !!"����� !!A�
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
=<10% 11-15% 16-20% 21-25% >25%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006
Underwriting support provided by:
2���0���
• Measures the % of each premium dollar used to pay losses andrelated expenses
• Best viewed over a long time horizon (5 years) to minimize year-to-year variability
• Acceptable range is between 45 and 100%• Low-frequency, high-severity exposures may require a significantly
lower ratio so that risk margin can be used to build the surplusposition of the captive
Up to 80%Short-tail
Up to 90%Long-tail
TRACS Loss Ratio (Maximum)
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
=<45% 46-55% 56-65% 66-75% 76-85% 86-95% 96-105% >105%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006
Underwriting support provided by:
� �����������'�������������������������������� �������������������������� ��� ������������������� !!"����� !!A�
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
=<45% 46-55% 56-65% 66-75% 76-85% 86-95% 96-105% >105%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006
Underwriting support provided by:
3� ���� ����7����
• Most captives invest conservatively• A low yield is not bothersome, unless investment
income is needed to support underwriting losses ordiscounted loss reserves
• The benchmark of each captive depends on their owninvestment policy statement objectives and constraints
Underwriting support provided by:
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
% of Respondents
=<3% 3-4% 4-5% 5-6% >6%
0% 20% 40% 60% 80% 100%
Long-tail Casualty
Short-tail Casualty
Property (non-CAT)
Property (CAT)
Low-Frequency, High-Severity
High-Frequency, Low-Severity
2007
2006