Cell captives solve many problems for brokers

Insurance brokers - already under siege from ever more stringent legislation - now face having to place their business in a volatile market that is still reeling from the costly 2005 U.S. hurricane season.

One way to place programmes (locally and internationally) without too much volatility is to make use of alternative risk transfer structures, like cell captives. Within the cell captive environment, premiums are allocated directly to individual cells and are used to pay claims, buy reinsurance for catastrophic events and make investments. Each cell covers only its own risks - there is no cross subsidization between cells - and economic benefits belong to the individual cell. Thus the broker is able to structure the insurance programme according to the client?s specific needs, risk profile and general appetite for risk.

"From the broker's perspective, an important benefit of the cell captive structure is that it fosters a long-term partnership between the broker, the client and the cell captive insurer. It's simple: cell captives work because the client is rewarded for prudent risk management; and prudent risk management is the cornerstone of a good insurance relationship," says Herman Schoeman, MD of Guardrisk, the world's largest specialist captive insurance group of its kind.

In the U.S. the traditional insurance industry has come under fire regarding practices relating to the payment of commissions and this has not gone unnoticed by insurance buyers around the world. "Earn-as-you-go" has long been the mantra of cell captive insurers - as opposed to the traditional market's "pay-as-you-go" formula - and this applies to traditional broker commissions as a remuneration structure too. Within the cell captive environment, commissions are replaced by a fee levied for services rendered. The broker is recognized - and rewarded- as a business partner; an approach that can only be good for the industry.

About Guardrisk
For the year ended 31 March 2005 the Guardrisk group's gross premium written increased by 16% to R2.513bn. The company pioneered the cell captive concept, introducing cell captives to the world?s short-term insurance industry in 1993, and extended the structure to the life industry in 1999.

For further information please contact:
Herman Schoeman
Guardrisk
Telephone: +27 11 669-1002
Cell: +27 82 376 3821

Prepared by:
Melanie Davis
PR at Work CC
Telephone: +27 11 615-3309
Cell: +27 83 225 7450