Captives must ‘expand their investment universe’
Insurers are running out of yield in high quality securities and may have to look to other areas of investment if this year’s underwriting results are as low as 2011.
Risk managers are going to struggle to appease regulators and rating agencies in the next year, it is predicted.
So captive owners must expand their investment universe, said Bob Smith, president of Sage Advisory Services.
“Most captive’s investment statements are behind the curve. Risk managers have to review their investment policy statements and really expand the universe of investments that should be under consideration and worth of investing in,” said Smith.
Smith said captive owners should consider using exchange treated funds (ETFs) to access higher level areas from a risk-based capital grading standpoint, such as high yield, international non-dollar government bonds, preferred stocks and convertible securities.
Another year with high loss experience may cause significant increases in prices, possibly pushing more parents to utilise their captives.
Smith said: “We have already started to see this over the last four or five years. We are not really in a hard market yet but I think we’re starting to get there.”
Insurance pricing increased across major lines by 0.9% over the second quarter of 2012, according to the Marsh Risk Management Global Insurance Index.
Financial and professional coverage rates rose by an average of 1.9% and casualty rates globally rose on average by 1.2% on renewal in Q2 of 2012, higher than the 0.8% increase seen in the previous quarter, Marsh has reported.