Case Study

Case Study: Captive Program Stabilizes Global Casualty Program

This Canadian-based industrial manufacturer with global operations relied on protection provided by a traditional casualty insurance program. The program consisted of general/products liability and automobile liability policies in the primary layer with relatively insignificant deductibles and an umbrella liability policy providing the required excess limits.

A 1996 automobile accident in the USA resulted in a tragic fatality that was assessed as having a very large settlement potential against the client. The reserve was promptly posted at US$ 5.5 million that required notice to the umbrella liability insurers. The casualty insurance premiums in the next renewal and in subsequent years were directly impacted by the reserve established for this claim. The automobile liability premium increased by $750,000 and the Umbrella Liability policy by about $300,000. This represented a 50% premium increase annually and it was apparent the insurers were looking to recover its expected settlement costs directly from the client. A comprehensive marketing initiative in the following year did not provide competitive insurance options to the client.

The Solution

The client accessed a captive insurance company, a wholly owned subsidiary of its parent company, and made effective use of this insurance “platform” to restructure its Global Casualty program. This program was structured such that the client self-insured and funded the 1st $1 million primary layer. A reinsurance policy provided Excess Automobile Liability and Umbrella Liability cover to required limits.

The client was concerned about a higher than expected accumulation of losses, particularly in the first years of the program before the captive could build the financial resources to meet its loss obligations. Finite reinsurance was accessed that allowed the captive insurance company to stabilize its loss experience over a longer-term.


This captive program was immediately successful and its successes were sustained over the long-term. The individually priced components of the program were competitive with the overall premium quoted by the traditional markets. The captive netted reinsurance ceding commissions that were captured for the benefit of the client. The “long-tail” settlement nature of this casualty risk resulted in an accumulation of interest income from reserves that peaked in year five.

Most important, the fact that this risk was partly self-insured and shared within the group had a great impact on the corporate culture of the client, as a philosophy emerged that losses were to be avoided and mitigated rather than transferred. This captive program was expanded to support affiliated operating companies and the parent corporation has achieved greater control of its insurance and risk management programs.