The Captive Manager’s Dilemma
BIAS fully comprehends the dilemma captive managers face in matching finite risk against financial instruments whose values fluctuate in response to indeterminable (non-finite) market events. Some captive managers attempt to avoid market risk by placing captive assets in short term money funds, not realising that in a declining interest rate environment they are increasing the likelihood that claims may not be met as the income of the portfolio declines along with interest rates.
At the same time the yields on money market funds may be painfully low, forcing the captive to charge higher premium payments than would otherwise be necessary.
BIAS has many years of experience structuring portfolios so as to maximise income while at the same time meeting expected payout requirements. Such structuring takes place after intensive consultation with the captive manager as well as the captive’s shareholders with respect to claims history, ongoing premium collection as well as current market conditions.
Because the captive’s objective is to cover claims against
some specified risk, we understand the importance of immunizing
the captive’s portfolio by matching as closely as possible
its assets to the anticipated requirement for payment against claims.
Controlling Financial Market Risk
BIAS enhances the performance of captive assets by managing the following aspects of financial market risk:
• Interest rate risk will be minimised by matching the duration of individual assets against the timing of expected claims.
• Credit risk will be controlled by selecting bonds with
a minimum rating of Moody’s A3 or Standard & Poors A-.
These ratings are reviewed on a daily basis.
• For the most part, Currency risk should be eliminated by maintaining assets in the currency of the expected claims.
• As interest rates vary over time, it is important for reinvestment risk to be controlled by laddering maturities over time.
• BIAS can denominate portfolios in any currency.
• Individual assets are tracked in their base currency, which allows return calculations to separate security performance from currency performance.
• Bermuda’s most experienced independent Fixed Income Portfolio Managers.
• As a Senior Portfolio Manager with Europe's largest portfolio manager, Mercury Asset Management (now known as Merrill Lynch Investment Managers) our chief investment strategist, Robert Pires, was responsible for global fixed income portfolios valued at more than half a billion dollars.
Pires (Chief Investment Stragetist) and Mark
Melvin (Chief Investment Analyst) have experience in managing
multi-million dollar portfolios including the Bermuda market, having
both worked for the Bermuda
Monetary Authority, as well as with well-known investment management
firms in the Americas, Europe, and the Pacific Rim.
Canadian Captives Conference
In early February BIAS was asked to participate in the Canadian Captive Forum 2006. The focus of the conference was to provide useful information to professional risk managers and captive insurance companies. BIAS was asked to speak on investment management strategies for captives.
Our presentation addressed the need for plan sponsors, captive managers, and investment managers to maintain open communication. It further highlighted the risks captive portfolios should consider such as currency, geographic, sector, credit, and reinvestment risk. Finally, BIAS presented a case study to illustrate how a Captive can maximize investment returns whilst ensuring adequate liability protection. The presentation culminated with a strategic decision making matrix designed to guide the investment management process for both short tail and long tail insured risks.
If you are interested in viewing the presentation you can find it here (Powerpoint Presentation) or if you would like more information on BIAS Captive Services please contact us directly or email firstname.lastname@example.org
BIAS' article and advertisment in Cayman Captive November 2007 www.CaymanCaptiveMagazine.com
BIAS' article and advertisement in Captive & ART Review Bermuda 2007 www.CaptiveReview.com
|To download Managed Portfolio Service Account for Captive Insurers Application forms in PDF format, click here|