Aviation companies and captives

11 April 2018

The aviation business, with its zero tolerance to safety violations as well as potential fluctuations of market premiums, could now more than ever be in a position to consider alternatives to traditional insurance.

One of the ways of doing this is through a captive.

A captive is “a wholly owned subsidiary of a non-insurance related parent company that acts as an insurer for that parents own risks.” The parent puts up their own capital to insure their own risks with a view to building a better risk management programme and sharing in underwriting profits.

How can a captive...

Help your traditional risk?

By self-insuring your traditional risks, you can retain some underwriting profit in your business, as well as ensuring you are able to pay claims. Paying yourself your premium, the captive can then take charge of your attritional claims where they may arise (to avoid pound swapping with insurers) and then retain the profits in your own subsidiary.

Having a captive can help to smooth fluctuations in insurance price.

Where the aviation market has been experiencing low rates for a long time, taking dependency out of the market can smooth the increases many aviation brokers are anticipating. This can be particularly valuable where there is uncertainty over airfares as it can add more certainty to your insurance spending.

Add more value?

After the North American hurricanes last year there could be a swing in the market, with a lot of underwriters being cautious (even those who were not specifically affected). As with traditional risks, exposure to the market can be limited by retaining more risk. Further exposure to weather can be managed through access to reinsurance markets.

Where there is less appetite in the insurance market, specifically for aviation with new technologies like UAVs, these risks can be incubated in your captive. This gives a chance to build up data, and a loss record, without exposing your balance sheet to unnecessary risk.

Look after your people?

It takes a lot of people to run a company. Most large companies now operate in several companies, and organise their employee benefit programmes locally.

The considerable time and expense involved in managing this can be reduced through Multinational Pooling, allowing for benefits from economies of scale and a global good claims experience.

Businesses can then build this into a captive, to benefit from further reductions in cost, as well as making sure employees have good coverage.

Look after your bottom line?

Cancellation cover, baggage insurance, travel insurance can generate huge profits for airlines, with claims that some budget airlines make as much as GBP 2.6 billion in add-ons.

By utilising a captive to offer insurance to customers, they can benefit from insurance, and companies can diversify their captives as well as generate some additional income.

One of the largest benefits to come from a captive, and particularly using one in this way, is data. By building up a picture the evidence shows where claims are coming from.

Key takeaways:

The idea of self-retaining risk is not new, and with the sector’s strong stance on safety monitoring and risk management data, it is in a strong position to benefit from captive insurance.

Using our full time consulting team to offer independent advice, captive underwriters and actuaries as well as our management teams we can offer you support through the full life cycle of the captive.

About JLT IM:

JLT Insurance Management (IM) has broad experience in both set up of innovative captive solutions and offering strategic consultation and captive management. We have an extensive background of working with global Aviation firms.

JLT IM provides leading corporations with Captive Management services in Barbados, Bermuda, Guernsey, Malta, Singapore and the United States.

With annual written premiums and assets of over USD 2.3 billion and USD 4.9 billion respectively, we’ve a proven track record in helping clients choose a fitting domicile for their Captive Insurance Company by evaluating business goals and operational issues. Over 30 of our current captives have transferred from other Captive Insurance managers. This is due to the active involvement of our highly experienced senior managers.

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