From: Business Insurance

Captive insurers are a good solution for property risks, but property-focused captives can also face challenges, experts say.

Pricing the risks, fronting and reinsurance costs, and capitalization are some of those challenges, they said Monday during a panel session at the Captive Insurance Companies Association 2024 International Conference.

Historically, insurance requirements in lender contracts have limited the tools available to companies to take on more risk or purchase less coverage, said Nate Reznicek, president and principal consultant at Captives.Insure LLC, based in Knoxville, Tennessee.

Lenders may require real estate owners to use insurers with a certain financial strength rating or set maximum deductibles or minimum limits, Mr. Reznicek said.

“Until the past couple of years there have not been very many capacity providers or carriers that have the ratings on paper that were willing to allow full property covers to be written or reinsured back into a captive,” he said.