SINGLE ENTITY PROGRAMS
Large accounts require individual attention and a tailored risk management program.
As accounts grow in size and mature beyond the capabilities of our middle market programs, we have
developed the capability to tailor individual risk management programs for larger accounts.
Our National Accounts +Plus treaty targets a wide range of classes and each account is individually underwritten.
Program Features
- A rated admitted paper
- WC/GL/AL
- Minimum standard premium $1,000,000 (WC/GL/AL)
- WC/GL/AL basket aggregate protection
- Eligible businesses: Most main street industry classes
- Ineligible businesses: Most contracting and Hazard Group IV risks for UK
- All states except MA, GA, and CA
SAMPLE PROPOSAL
Innovative Risk Services (INRS), a risk management organization, and DEF Brokers, have prepared this proposal for ABC Company to become a member of the Alternative Risk Transfer Exchange (“ARTEX”).
ABC Company is a growing corporation and recognises the need to take control of
its insurance program through an unbundled product that provides the following
ADVANTAGES:
- Unbundling of claims and loss control services.
- The ability to earn underwriting profit and investment income for good loss experience.
- A rated policy issuance carrier.
- Access to secure and stable reinsurance.
Although ABC’s premium has fluctuated in recent years with insurance market
conditions, ABC’s losses have averaged approximately $1,000,000 per year.
HOW THE PROGRAM WORKS
Step 1 – The Insurance Policies
The proposed “ARTEX” program for ABC Company will be structured around
guaranteed cost policies arranged by DEF Brokers. Favorable experience
will be reflected in good experience returns to ABC Company. However,
unlike ordinary dividend programs ABC Company will also receive the investment income normally earned by the insurance companies.
Policy issued by: XYZ Insuance Company
Policy type: Guaranteed Cost
Good experience returns will be determined by subtracting the insurance program’s expenses plus incurred losses from earned premium and investment income.
Step 2 – Premium Calculation
ABC’ s premium is actuarially determined based on its own historical loss experience. ABC’s premium will therefore be:
Loss Projection $1,300,000
Program Expenses $ 700,000
Premium $2,000,000
Program expenses include the cost of policy issuance, claims handling and loss control, reinsurance premiums, broker commissions and all administrative and management expenses of “ARTREX”.
Step 3 – The Reinsurance Program with “ARTEX”
Upon receipt of the premium, XYZ Insurance Company will pay the loss projection a
mount (loss fund) of $1,300,000 to “ARTEX” in installments.
The per occurrence loss limitation is $250,000, i.e. individual losses to “ARTEX”
are limited to $250,000 each occurrence. In addition, “ARTEX" have purchased
aggregate reinsurance on behalf of the insured to provide protection from adverse
frequency of losses within the retention layer.
In this example, the aggregate reinsurance will attach at 90% of premium which means ABC’s losses will be stopped at 90% of $2,000,000 or $1,800,000.
Step 4 – Collateral
“ARTEX” is responsible for all losses within the chosen retention $250,000), which are capped for the program year at $1,800,000 in the aggregate. The loss funding available to pay claims is $1,300,000 and therefore an additional funding amount is required for the difference between the aggregate cap of $1,800,000 and loss funding of $1,300,000. This $500,000 can be funded in cash or letter of credit or a combination of both. Collateral financing is available.
The Supplemental Agreement contractually guarantees the formula by which underwriting profit and investment income are returned
Step 5 – Profit and Loss
Three years after the policy year end, Artex will make an actuarial determination of ultimate losses for the program year and of ultimate losses for the program year and declare a profit or loss for ABC’s program.
The following assumptions are used to calculate ABC’s profit based on losses of $1,000,000 (50% loss ratio):
Subject Premium : $2,000,000
Premium Payment Schedule : 20% down/8 monthly payments
Loss Fund : $1,300,000
Program Expenses : $700,000 (35%)
Program Maximum : $2,500,000
Letter of Credit : $500,,000
Using NCCI payout patterns and an assumed investment rate of 5% over an 8 year period, profit is calculated as:
Underwriting Profit $300,000
Investment Income $288,000
Total Profit $588,000
Step 6 – Determining True Program Costs
A number of factors beyond premium payment schedules and expenses need to be considered when analyzing or comparing insurance programs. Tax consequences, the timing of loss payments and dividends as well as the opportunity to earn investment income can significantly change the cost of a program.
The net after-tax cost to ABC Company for the ARTEX program is determined by subtracting the dividend and investment income form premiums paid. Assuming the business continues to be written at a 50% loss ratio, the result will be as follows:
NET COST TO ABC COMPANY
Premium: $2,000,000
Tax Deduction (@ 34%) ($680,000)
Estimated Ultimate Dividend ($588,000)
Tax Payable on Dividend (@ 34%) $199,920
After-Tax Costs: $931,920
Please refer to your own tax counsel for specific tax advice.
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