Pricing Without Data Requires Actuarial Creativity
Aaron Hillebrandt

Pricing Without Data Requires Actuarial Creativity

A Concern for Small Captives

Pricing for coverages commonly written by small captives making the 831(b) tax election is not your run-of-the-mill actuarial exercise. As a result, captive owners and managers need to be sure their chosen actuary has the experience and judgment necessary to perform these services successfully.

Ask an actuary to develop a pricing (or ‘funding’) estimate for Workers’ Compensation coverage in your captive and what will they do? Most likely they will ask you for loss runs, exposure information, and details about the program and the layer of loss that is covered. This will form the basis of their funding estimate and many actuaries with the requisite experience can do this reasonably well. So what happens when there are no loss runs?


Small captives making the 831(b) tax election tend to write coverages that are not commonly written by conventional carriers. The coverages may be for low-frequency, high-severity events. They may be for exposures the entity has historically retained. The exposure insured by the captive may be similar to coverages written by commercial carriers, but the breadth of coverage offered by the captive’s policies may be substantially different from that offered by commercial policies. In most of these cases, loss runs simply do not exist. Actuarial creativity becomes a requirement to develop reasonable funding estimates.

Pinnacle currently serves thousands of employers who manage risk through captive or self-insurance programs, including hundreds of small captive insurance companies. As a result, we can provide actuarial services to small captives confidently and efficiently. Through our collective experience, we have turned many common small captive actuarial constraints into strengths, including pricing approaches for numerous uncommon coverages, the right benchmarks to use, and applying appropriate risk margins.

You can contact me directly at any time to further discuss creative pricing approaches for small captives. Additionally, my colleague Rob Walling and I recently provided a continuing education webinar on these topics through the Casualty Actuarial Society. The webinar recording is available now through the University of the CAS - you must be registered with and logged in to the CAS website to view it. The cost of the webinar is $25.

ahillebrandt@pinnacleactuaries.com

For more information about Aaron, visit his People page.


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