Choosing the Right Investment Manager for Your Captive Program

Captive formation and use have increased in many organizations in recent years. As risk management costs rise and some risks become difficult to reinsure at all, more communities are looking to remove traditional insurance profit loading and focus their efforts on their own captives.

In addition to a rise in new captive formations, changes within the capital markets and economic pressures have resulted in existing captive owners revisiting investment strategies for their captive.

Whether your organization is looking to form a captive for the first time or find opportunities to optimize and enhance your existing captive program, it is important to understand the nuances of how a captive works and the benefits one can offer. Working with an experienced investment manager and making connections with a collaborative team are essential to reaching the best outcomes.

Creating a Captive

Creating a captive formalizes the financing of selfinsured risk by forming a licensed insurance company owned and controlled by those it insures. This provides tribal governments and businesses with more risk management and cost control and the flexibility to choose what risks are self-insured under the captive and what are insured externally through commercial insurance. A captive is a fluid tool, allowing owners to control what risks are covered under the captive. As markets change and needs evolve, owners can move risks in and out of the captive to best serve their current strategies.

Selecting an Investment Management Provider

Selecting the right investment management provider to help your tribal business is imperative— both when forming a new captive and streamlining an existing one. It may seem simple to tap into a bank or other provider that you already engage. However, the right investment management firm for your captive should understand the complexities of insurance asset management, the underlying liabilities and risk lines as well as the unique needs of your tribal community. A provider with special teams focused on insurance and tribal business solutions can offer added benefits. To create an optimized investment program, an investment manager should utilize actuarial modeling to build out an initial investment strategy. With asset liability modeling analysis, your manager should be able to match your liabilities duration with the investment duration to maintain adequate liquidity to support claims.

Collaboration is key in managing an effective captive. Developing a strong relationship between the captive’s service providers creates a fully synchronized team, helping to confirm a successful captive program.

Working Together for Better Outcomes

An active investment strategy for your captives, both newly formed and existing, should help maximize investment income generation. An investment manager should understand your unique risk profile and its underlying liabilities and liquidity needs. Working together, you will be able to build a program to provide inherent liquidity through customized investment strategies and minimize capital market headwinds.

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Learn how PNC Institutional Asset Management can help meet your captives’ needs. For more information, please visit pnc.com/iam.

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