Welcome to 2021. Let’s hope the optimistic predictions for this year turn out to be true. My New Year’s reading includes 5 Questions for 2021, a report by Jason Thomas, head of global research at the Carlyle Group, published January 13, 2021, on the Carlyle website. It is worth reading in and of itself, but I thought I might adapt its global investing theme for the captive industry.
These are questions I believe captive managers and boards should be asking as they survey the environment in which they operate. Frankly, there are a lot more than five questions that should concern captive leaders. However, these are the ones I put at the top of my list. Readers are always welcome to respond with their top questions as well.
Obviously, reinsurance is a major concern for most captives. A captive insurer’s ability to underwrite risks important to its owner(s) is directly correlated to its ability to secure the necessary reinsurance coverage needed to limit its exposure. One of the websites that I follow to stay on top of developments is Reinsurance News. Worth noting are two recent articles based on analyses by Aon and Morgan Stanley of the state of the markets.
“Capital Supply Sufficient To Meet Foreseeable Reinsurance Demand: Aon,” a January 14, 2021, article by Charlie Wood, concerned the supply of capital within the reinsurance industry. “Overall, supply is considered sufficient to meet foreseeable reinsurance demand, but is likely to be deployed at better terms than have prevailed previously,” the article says, citing Aon analysts’ findings. However, the Aon analysts note some areas of concern, according to the article, including “the ultimate cost and distribution of COVID-19 losses” and “social inflation’s potential threat to casualty reserves.”