Risk yönetiminde captive sigorta uygulaması ve Türk sigorta sektörüne etkileri
Captive insurance in risk management and influence on Turkish insurance market
- Tez No: 106630
- Danışmanlar: Y.DOÇ.DR. SEZAİ DUMANOĞLU
- Tez Türü: Yüksek Lisans
- Konular: Sigortacılık, Insurance
- Anahtar Kelimeler: Risk yönetimi, Sigorta sektörü, Sigortacılık, Zorunlu sigortalar, Risk management, Insurance sector, Insurance, Compulsory insurance
- Yıl: 2001
- Dil: Türkçe
- Üniversite: Marmara Üniversitesi
- Enstitü: Sosyal Bilimler Enstitüsü
- Ana Bilim Dalı: Sigortacılık Ana Bilim Dalı
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: Belirtilmemiş.
Özet
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Özet (Çeviri)
tezin ingilizce özeti summary of the thesis Risk management has been a very hot topic among the firms in the developed countries. The total risk that is identified and assessed by the risk management, has a very important role in taking decisions through the firm's mission. An efficient risk management with risk measurement techniques will make the firm successful. The main goal of my study is to introduce and investigate the captive insurance which is established by the firm itself to finance its own risks by retention technique of Risk Financing. Risk is the variation in the outcomes that could occur over a specified period in a given situation. The degree of risk is related to the ability to predict which outcome will actually occur. If risk can be reduced or can be controlled then the future outcomes will be more predictable and more manageable. Risk can be classified as pure risk (where there is a change of loss but no change of gain) and speculative risk (where there is a chance of gain as well as a chance of loss). Risk Management is the identification, measurement and treatment of exposures to potential accidental losses. Risk Management also enables a business to handle better its ordinary business risks. Risk management process has several steps: risk identification, risk measurement, choice of risk management techniques which is risk control and risk financing. After identifying all risks of the firm the risk manager has to measure every risk exposure. Each risk has two parameters which are loss severity and loss frequency. Loss severity refers to the probable size of the losses that may occur. Loss frequency refers to the probable number of losses that may occur during some given time period. i“ I V After identify and measure risks there are techniques to handle them ohe of which is risk control and the other risk financing. Risk control measures to alter the”exposures I * h.in such a way as to reduce the loss severity or to make the annual loss experience more predictable. Risk financing measures to finance the losses that do occur. Risk Control Tools: Avoidance : Avoid the property or activity with which the exposure is associates by refusing or abandoning the activity Separation : Separation of the exposures to loss instead of concentrating them at one location. Combination : Making loss experience more predictable by increasing the number of exposure units. Transfer : Shift the property or activity to someone else, eliminate the transferor's responsibility to the transferee Risk Financing Tools: Transfer : The transferor seeks external funds that will pay for the losses that do occur. Retention : The source of the funds is in the firm itself or in the group which the firm belongs. Captive is a retention tool where the firm form a fund with an insurance company which the firm itself establish. Captive Insurance Company A captive insurance company is a legal entity formed primarily to insure the risks of one corporate parent or a number of similar corporations (e.g. trade associations) thereby contributing to a reduction in its parent's“total cost of risk”. Captives are usually domiciled in a specialised location, either offshore or onshore, and sometimes write business unrelated to their parent. Captives are formedJ8rimanyJ reasons, including the lack of a commercial market for certain lines of Jfgiyerage, the ' desire to recapture underwriting profits and investment income that wfupMjth^rwise^ be earned by the commercial underwriter, as a means to access th^ *market or, in certain circumstances, as a means of diversifying into insurance services. Captives are used extensively throughout the world by major corporations to cover risks situated both at home and abroad. Most, but not all, captives are established in an“offshore”location. The main reason for this is not, as is often the perception, the desire to establish in a benevolent tax environment but because of regulatory issues and other business considerations. This reduces both the time taken to license a captive and the regulatory costs incurred by the captive in comparison with most“onshore”locations. A captive can be a direct writing company (i.e. issuing its own policies) or a reinsurer of a“fronting”insurance company. Typically, the captive reinsures the fronting insurer for the primary layer losses and the fronting insurer retains the risk in excess of the primary layer. Usually retain a higher deductible through the purchase of a“stop loss”reinsurance. Advantages of a Captive The major benefits that the^stablishment of a captive brings to its parent can be divided into two main categories, financial and insurance. Financial Advantages Reduced Insurance Costs - Most corporations do not retain as much risk as they are able to financially and the commercial insurance market has high administrative costs which are passed on to their clients within the premiums charged. A captive can reduce the overall cost of an insurance programme by retaining the premium for the expected losses thereby avoiding the premium loading for a commercial insurer's overheads and profits on this element of the overall premium. Improved Cash Flow - Reserves for unpaid claims and unearned premiurl?| kept by a commercial insurance company, can be held by a captive“***?”<<**?'This takes advantage of an insurance company's ability to establish such reserves from pre-tax income that is not possible for a non-insurance entity. Matching of Revenue and Expense - With some types of coverage, particularly liabilities to third parties, losses may emerge over a number of years. A captive is able to reserve from current funds for future claims payments, thereby matching revenue and expenses attributable to each financial year. Performance Measurement - The financial impact of the parent company's risk management programme can more easily be monitored and evaluated and the captive's performance measured in terms of return on investment or other financial criteria. Source of Additional Revenue - A captive can expand its book of business by offering insurance to related third parties, such as franchisees, vendors or customers, thereby generating an additional revenue stream for its parent. Insurance Advantages Coverage for Risks Not Usually Insurable - A captive can provide insurance cover that is not available in the commercial market or not available at a realistic premium. Reduced Need for Commercial Insurance - As a captive matures and its net worth grows, it becomes capable of retaining a greater proportion of its parent's risks. The increased use of a captive diminishes the parent's dependence on commercial insurance. Improved Negotiating Position - As the captive's ability to absorb risk grows, it improves the parent's negotiating position with insurance and reinsuranc^jjiijjkj^s.Flexibility in Programme Design - A captive provides opportunities to more easily structure insurance programmes since the captive is not subject to the same constraints and conventions normally evident with traditional insurers. Broader and Simpler Insurance Contracts - A captive is usually domiciled where there is little, if any, regulation concerning policy wordings, thereby allowing specifically tailored insurance and reinsurance contracts. Disadvantages of a Captive Whilst there are many potential benefits in forming a captive, several significant disadvantages exist which must be assessed thoroughly before a decision to establish a captive is taken. These are, mainly: Capital Commitment - The parent must contribute the capital required to support the captive's business plan which must be agreed by the insurance regulator in the captive's chosen domicile. Whilst these funds remain within the parent group, they may not realize the same return as they would have if invested in the parent's operations. Risk of Adverse Results - The captive's capital could be eroded by adverse operating results. It is especially important to note that if unrelated risks are written in a captive, the risk of unprofitable underwriting results increases as the captive's intimate knowledge of the parent's own risks is not present with unrelated risks. Operating Cost - In its formation and operation a captive may incur, depending on he domicile chosen, various expenses including: implementation costs, management fees, legal and auditing fees, local taxes and regulatory / licensing fees.How a Typical Captive Operates Other than in a rent-a-captive arrangement, a captive is a fully owned, capitalized subsidiary of its parent company or association. It will be incorporated in a domicile appropriate to the captive's role in its parent's insurance programme and will be authorized to trade by the regulatory authorities in that domicile. Control of the subsidiary will be exercised by a Board of Directors appointed by the captive's shareholders, generally the parent company. The board usually consists of a mixture of locally domiciled and parental appointees. The Board will, in turn, appoint selected local organisations (mostly insurance broker) to provide support services to the captive, including, if appropriate, solicitors, investment managers, auditors, bankers etc. It is unusual for captives, particularly newer organisations, to employ their own staff; a management company is normally appointed. Types of Captives There are four types of captive: Single parent captive, group captive, rent-a-captive and risk retention group Single Parent Captive A single parent captive is a licensed insurance company owned by one parent organisation. It is designed primarily to insure the risks of the parent, although its charter might permit underwriting unrelated business. Providing all of the captive's actions are deemed prudent and are within the scope of the law, it can write almost any line of insurance and charge a premium that the parent and the regulators find acceptable. All decisions regarding the operations of the captive are made by its Board of Directors. This ensures that the company maintains control of the captive^ operations and permits the company to be as aggressive or conservative asj^sired:' %..^ ;* S saw s ' '<? t «rf % ** V, «?'. '?:. '. ?* ?.'-?'?i'-,3tv «?.?s**-Group Captive A group captive is a captive insurer having two or more owners, typically members of a trade association. Sometimes the association itself owns the captive. Group captives are generally formed for the same reasons as single parent captives. Where adequate insurance is difficult to obtain during hard and/or difficult market conditions, group captives are formed by people/organisations such as: Doctors/Hospitals seeking medical malpractice,“High”liability risks such as: Oil Companies, Refineries, Utilities, Contractors, Sports Organisations Some factors critical to the survival of a group are:. Common interest and objectives among members. Understanding and willingness to share risks and that own position may be influenced by the management and loss control of others. Confidentiality among members and the avoidance of conflicts of interest. Long term commitment. Prudent loss control as the foundation for success. Equality among partners Rent- A- Captive As a separate entity set up by sponsors, the rent-a-captive facility“rents”underwriting capacity to insureds. Therefore, the insured accesses an existing, fully capitalized insurance company rather than establishing its own facility, in effect permitting a gradual move into the alternative insurance field. This alternative to financing risk serves as an outlet to retain risk without the capital outlay and management commitment required in the formation of a stand alone captive insurer. However, factors do exist which distinct a rent-a-captive facility from that of a wholly owned captive making a rent-a-captive somewhat of a hybrid insurer:. An outlay of capital is not required. Commitment can be for a shorter time span. Able to avoid the expense and administrative duties associated: formation of a captive. Simplicity of participating in program. Potential for accessing expanded reinsurance capacity based on the purchasing power of facility participants With regards to incorporation and operational costs affiliated with participation within a rent-a-captive program, an insured can avoid the initial start up costs associated with a stand alone captive while possibly incurring reduced operational expenses. Annual operational costs primarily fall into four categories:. Capital Rental Charge - 10 percent or more of the amount of capital rented. Management Fee - varies depending on the size and complexity of the programs written. Fronting Fee - (if applicable) 7 percent of premiums. Letter of Credit costs- (if applicable). Audit and Legal Fees Premiums are rated based on an insured's own loss experience and charged accordingly. Risk Retention Group (RRG) A risk retention group is a group captive, it meets the self-insurance and organisational requirements of that type of captive. However, it must also meet additional requirements to qualify as a“risk retention group.”The most important of these are: 1. There must be more than one member of the group and all members of the group must be owners of the captive. This requirement could be satisfied by either having the company's subsidiaries own the RRG, or creating an association (whose members would be the operating subsidiaries) to own the RRG. 2. An RRG may only write liability lines of insurance;“regular”captpel^ean I \ İ ***** JL i >, write all lines of property and casualty insurance; f ^' » *“ V ' ”k \ i i i! I ~ !An RRG cannot provide reinsurance. The only exception is that an RRG can provide reinsurance to another risk retention group or another group's members, and only if that group (or member) is in the same business or activity as the RRG providing the reinsurance. For all practical purposes this means that an RRG cannot provide reinsurance.“Regular”captives are able to provide all kinds of reinsurance. Turkish Insurance Market The unconscious competitive policies which have been followed since the liberalisation of the insurance sector in 1990, caused declines in technical and the stabilising financial profits of the companies. These developments, coupled with the great losses caused by the earthquakes and also the findings that the earthquake risk within the Marmara Region is greater than estimated had negative impacts on the technical results of reinsurers. In Turkey, non-admitted insurance is not allowed except marine cargo and life insurances according to the article 29 of Insurance Inspection Law number 7397. Local legislation places restrictions on the ability of insurance companies (including captives) not licensed in that country to write business relating to interests in that country. And there is also article 28 stating that all policies issued in Turkey must be according to the General Conditions of the Insurance prepared by Association of The Insurance and Reinsurance Companies of Turkey and approved by the Undersecretariat of the Treasury. In Turkey, to establish an insurance company there must be an permission taken from the Undersecretariat of the Treasury and the capital must be a equal or higher than a limit like 2,400,000 EURO or 3,000,000 EURO. Beside all these above factors there are some obligatory tariff that should be applied by all the insurance companies like the earthquake and terrorism tariff. Establishing a captive insurance company with these conditions may not be an advantage because the captive that is established would not be very much differe^p^ithw.“thec^-';^linsurance companies in the Turkish Insurance Industry. So the only advantage could be to make a deal directly with the reinsurers. A company facilities and contents must distribute to huge space, and homogeneous in his values for each place to begin to think about establishing a captive. This means the risk of the company should be distributed to not only to Turkey but to all around the world. Then establishing a captive would be an advantage. The Influence of the captives to the Turkish Insurance Industry As the trade barriers throughout the world are lowered and companies become more internationally oriented, insurance buyers are taking a more global approach to risk financing and captives can play an integral role in the successful implementation of a global risk financing strategy. In this study it is searched if captive insurance is applied in the Turkish Insurance Market or not by a questionnaire done to six insurance companies. Yapı Kredi, Garanti, AxaOyak, Ak, KoçAllianz and Anadolu Insurance companies are the companies that take place in the questionnaire. The hypothesis of the survey is weather there is a captive insurance company in Turkey or not. These insurance companies was chosen from the top ten list of the premium production in 2000 and the turnover of the group they belong to was higher than 4,000,000,000,000,000 TL. According to the 10 questions asked it is concluded that there is no captive insurance in the market. The questions are, share holders of the company, is the risk of the group and its subsidiaries insured by you, how much percent of the portfolio is the premium of the group, do you have a special treaty for the group companies, rt<^;^«^ are the insurance conditions same with unrelated risks, is the insurance deductible same with the unrelated risk is the insurance premium same with the unrelated risks, is the insurance deductible same with the unrelated risks, f ğğ fi”. $ m S ! ;.. ?i es. ». ' ?-- $1 Tat,*BiS,i». &&ı w* Ji*is a special risk assessment done to group companies, is there a barter between you and the group companies, is there a in-house agent to insure the risks of the group. It is concluded that although there is no captive insurance company in the Market today, probably and naturally captive insurance will take a role in the Market in the near future as the firms are growing and progressing internationally. Especially when Turkey enter into EU then non-admitted insurance will be allowed and real competition will occur between insurance companies. The companies growing internationally will have more courage to form a captive when the insurance market gets harder to give a coverage and when the companies can investigate the insurance products internationally.
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