Kate Miller of London & Capital and Jack Meskunas of Oppenheimer discuss the importance of investing captive assets and finding the right asset manager to ensure a captive operates efficiently and effectively.
Asset management has a fundamental role in ensuring a captive achieves its objectives, as financial assets are central to how a captive insurance company manages insurance risk.
The inherent flexibility and customisable nature of a captive means that its investment portfolio must be carefully managed to ensure it is tailored to meet the captive’s specific requirements, whether relating to solvency, liquidity, collateral, income or long-term value.
Kate Miller, partner and head of institutional business at London & Capital, notes that the objectives of a captive will vary according to how long it has been established. She explains that a new captive may wish to preserve capital in the first few years, as well as demonstrate a robust underwriting performance, before taking on investment risk.
Alternatively, captives insuring long-term risks will require a portfolio that matches their long-term liabilities with the assets on their balance sheet to optimise regulatory capital, prioritise sufficient claims cash flow and ensure they provide stable premiums, Miller adds.
“We have typically seen a whole spectrum of captive objectives, ranging from a simple short-term way to access reinsurance markets to an out-and-out profit centre. For all these challenges, your asset management strategy can become a core part of your business planning.”
Miller continues: “Every captive should think carefully about how their assets can effectively be utilised and avoid default ‘solutions’, such as cash in the bank or intercompany loans. This process takes time and effort to properly engage with, but generates outsized returns for the captive.”
With this in mind, Jack Meskunas, executive director of investments and captive insurance asset management advisor at Oppenheimer & Co, identifies that the most significant role of asset management in helping a captive achieve its objectives is one of guidance.
He explains that this is because, fundamentally, a captive is an insurance company formed to provide a service to the parent. Therefore, all other aspects are essentially ancillary to the captive’s ability to provide insurance and pay claims in a timely manner.
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First published on Captive Insurance Times on April 7th, 2022.
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