ART providers have revisited their value proposition
- Herman Schoeman, MD of Guardrisk

The corporate world - locally and internationally - isn't what it used to be. Change is the order of the day, and issues like accounting standards, corporate governance, unprecedented business risks and compliance are upper most in the minds of management. In response to these changes, alternative risk transfer (ART) providers have revisited their value proposition to clients in order to ensure that they are providing products that address clients? risk needs in a constantly changing environment.

The advantages of ART that were apparent five years ago are not always evident today. In recent years there has been more emphasis on providing additional risk transfer within ART structures and this has forced ART providers to analyse the risks that they are taking on board much more carefully.

In overseas markets, providers of ART structures - and more specifically finite products - are seeking certainty with regulators and accountants on the treatment of these structures, not only within their own companies and financial statements, but also in those of these corporate clients. In fact, the Financial Services Authority in the United Kingdom requires companies' senior executives to sign off finite risk products that they acquire. One of the problems is that in the past there has been little consistency among the auditing profession on the methodology to be adopted in accounting for ART structures. This is now changing with the introduction of international accounting standards. This type of certainty can only be good for the ART market as companies are now fully aware of the various implications of ART structures and moreover ART structures are now being bought for the right reasons.

And even in today's every changing business environment there are still many good reasons for companies to establish such facilities. In group companies, ART is a valuable risk management tool that ensures that all divisions contribute meaningfully to self insurance and allows group companies to provide cross subsidization across their various operations.

Providing for uninsured risks and retentions via an ART structure allows companies to accurately budget for these costs when the risks eventually materialize. Similarly - because premiums that are paid into ART structures are calculated on an actuarial basis - it is possible to provide clients with more accurate forecasts of the actual cost of their risk.

More and more companies - especially those with large retail client bases - are finding their ART structures, and more specifically cell captives, useful to provide insurance products to their own customer base.

And then there's always one of the most compelling reasons of all to establish an ART facility: flexibility. Despite the fact that markets are currently relatively soft, those clients with robust ART capacity will be well positioned when the hard market returns, as it inevitably will.

One of the consequences of the challenges faced by ART providers is that they are looking at additional ways to enhance their value proposition to clients and this has resulted in them diversifying their businesses. For example, some ART providers are providing risk related services such as back office captive support and consulting services, especially actuarial consulting.

The ART industry was founded on the desire for innovation and ART providers have turned their capacity for innovation inward and reinvented themselves.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450