Dupage Policy Journal

A pair of consulting actuaries at SIGMA Actuarial Consulting Group recently reviewed what captive insurance companies can consider most when reviewing actuaries for 2023.

Michelle Bradley and Enoch Starnes wrote an article for Captive International, where they said using benchmarking databases can be useful in setting baseline measurements for a company’s financial situation. With things like inflation, the databases in correlation with indications on a captive’s actuary report can help to identify sources for more effective communication, and if a specific indication reflects a rapidly changing economic environment. They said that indices include average hourly earnings, a single price index, a producer price index and cost trends.

“The consequences of a historically high inflationary environment are far-reaching, and insurance costs are no exception,” they said in the article. “No matter where a captive’s retained risk comes from, the dramatic increases seen in recent years on materials, medical treatment and numerous other areas are driving the cost of claims higher than anticipated. Alongside this, the financial implications on items such as property values and wages mean that risk-related strategies must evolve quickly to assess a reasonable level of impact on captives’ exposures.”

Transparent communication between a captive and its actuary about the uniqueness of the company's risk portfolio can help with qualitative context for quantitative information on datasets received, according to the article. 

For example, a captive retaining a level of risk for a client would communicate through its actuary both significant growth and an employee's average hourly earnings while the number of employees is consistent. From that information, it can be assessed what kind of adjustments are needed for the best possible risk management.

Other factors include the actuarial derived premium estimates and if they will be impacted by inflation to allow for potential adjustments, according to the article. Bradley and Starnes also said that social inflation is a factor that can affect a captive’s risk portfolio as far as future loss and premium estimates go.

The article adds that a captive’s performance in a volatile economic environment relies on the captive owner’s engagement level with third-party providers they select. It also said that maintaining consistent levels of engagement communication on both sides of the captive team are a priority “as achieving this is one of the most consistent attributes of financially healthy captives.”