Risk financing helps organizations achieve the strategic balance of risk management—aligning the willingness and ability to take risk with business goals. Generally, the objective of financing risk is to ensure liabilities are either paid or cost-effectively financed while maintaining an adequate level of internal liquidity. Sometimes, this strategy includes planning to meet legal or regulatory requirements.

Organizations looking for a flexible risk financing option may use a captive insurer or captive – a special type of insurance company set up by a parent company, trade association, or group of companies to insure the risks of its owner or owners.  Often liability coverage for insuring certain risks with commercial carriers might not be cost effective, customizable, or even available at all. Forming a captive can provide tax benefits. Additionally, captives can provide access to the reinsurance market, using a variety of reinsurance mechanisms to provide coverage.

Guiding Principles for Triple-I Insurance Economics

Triple-I Insurance Economics and Data Analytics is the go-to-destination for data-driven insight into the relationship between economics and insurance performance. Led by our Chief Economist and Data Scientist, Dr. Michel Leonard, CBE, the practice aims to provide Triple-I members, industry stakeholders, and the general public a one-stop resource for property/casualty (P/C) data-driven insight including:

The pace of COVID-19 infection and casualties is accelerating. As of publication, the virus has claimed 1,267,780 lives and infected 51,211,972 people worldwide. Far from losing speed, this is an increase of 50% in casualties and more than 100% in infections in the last 3 months alone. The U.S. continues to top the list of most impacted countries, followed by India, Russia, Brazil, France, Spain, Argentina and the U.K.

Highlights

The second quarter of 2020—which delivered the fastest descent into the steepest U.S. economic contraction since the Great Depression—was not nearly as tough for the financial performance of the property/casualty (P/C) insurance industry as we had expected, so the first half overall remains an attractive one.

The COVID-19 pandemic continues to depress growth across the world with nearly every country experiencing negative growth and recession. Overall, benchmark GDP forecasts for 2020 and 2021 have been worsening over the last three months pointing to a deeper and wider impact by COVID-19 on global GDP growth than initially forecasted at the pandemic’s onset, according to a new Insurance Information Institute (Triple-I) report.

2020 first-quarter data in comparison to both the previous quarter and the first quarters of prior years, gave little hint of the shock that was to follow in 2020’s second quarter. Indeed, for the property/casualty (P/C) insurance industry, the first quarter of 2020 generally went well. Although there were some bumps in the road—policyholders’ surplus fell by $75 billion, or -9.0 percent, from the 2019 year-end level—most measures of financial results (premiums, underwriting results, investments, surplus level in relation to net written premiums, and profitability) were positive. The industry results were released by ISO, a Verisk Analytics company, and the American Property Casualty Insurance Association (APCIA). A discussion of the key drivers of the quarter’s performance follows.

The Insurance Information Institute's Global Macro and Insurance Outlook was written by Dr. Michel Leonard, CBE, vice president and senior economist. Before offering an assessment of the Global Insurance Outlook, Dr. Léonard’s report gives a Global Macro overview of the variables which impact all economies: Growth & Inflation, Monetary & Fiscal Policy, and Political Risks.

2019 was a solid, profitable year for the property/casualty (P/C) industry, with contributions to profit from both insurance and investment operations. Net income after taxes was $61.4 billion.
The combined ratio for 2019 was 98.9, slightly better than the 99.2 in 2018.
At the end of 2019, industry surplus attained its highest-ever level—$847.8 billion. This was driven largely by unrealized capital gains from a soaring stock market in the second, third, and fourth quarters of the year and declining interest rates.

The Insurance Information Institute's (Triple-I) Global Macro and Insurance Outlook was written by Dr. Michel Leonard, CBE, vice president and senior economist.

The Triple-I's Global Macro and Insurance Outlook notes the following key points in the report: