Captive insurance companies have come a long way from their origins as simple financial safety nets. In this forward-looking session at RIMS 2025, experts explored how captives have evolved into sophisticated risk-financing tools, increasingly leveraging structured reinsurance solutions to manage volatility and optimize capital. Melissa Hollingsworth of the Los Angeles Unified School District and Thomas Keist of SRS Altitude Underwriting provided valuable insight into the benefits of multiline, multiyear reinsurance structures, outlining their role in enhancing cost efficiency and reducing overall risk.

The Evolution of Captives: Growth and Motivations for Establishments

In the early stages, captives were designed for risk pooling and alternative to separate accounts. Incurred but not reported losses (IBNRs)  within captives were developed for insurable risks as a safety net.

In the tax era, captives were used for tax optimization, creating arm’s length pricing.

During arbitrage, captives were used as a risk transfer arbitrage vehicle. This resulted in access to the reinsurance market.

Present day, captives are a widely accepted total cost of risk (TCoR) management entity. As a result, risk-data based decision making emerged with captives at the heart of risk management organization.

Structured Reinsurance

Structured reinsurance is an approach that provides customized risk transfer solutions, often for multi-year periods and across multiple lines of business. It is designed to address the specific risk management needs of an insurer or corporate client, allowing them to retain more risk through their captive vehicles or corporate retention. So, when does structured reinsurance make sense?

Scenario 1

Problem:

Cost of Capital: Surplus strain relative to optimal retention strategy

Solution:

Structured Reinsurance: Multiline aggregate excess of loss reinsurance

Benefit:

Less Capital Needed: Structured reinsurance can act as efficient capital surrogate

Scenario 2

Problem:

Cost of Volatility: Sensitivity to consolidated earnings volatility

Solution:

Structured Reinsurance: Multiyear aggregate excess of loss reinsurance

Benefit:

Budget Certainty: Structure reinsurance creates budget certainty through loss caps for longer-term periods at fixed cost

Scenario 3

Problem:

Cost of Risk Transfer: Efficiency gain for large limit multiline programs with low large-loss frequency

Solution:

Structured Reinsurance: Multiyear-multiline aggregate excess of loss reinsurance with risk-financing elements

Benefit:

Cost Reduction: Structured reinsurance can reduce reinsurance spend in a layered captive reinsurance program