Captives and Alternative Risk Financing: A Growing Answer to the Volatile Insurance Marketplace

A CAPTIVE PROVIDES:

Direct control over coverage, pricing, limits, loss control, claims administration. A Captive eliminates the instability of availability and pricing cycles in traditional insurance; improved control of earnings through tax benefits and use of investment income, etc.

In addition, future costs are based only on your own costs rather than those of an entire national insurance company or other companies within your category of risk.



Alternative Risk Financing:

In 2003, Pennsylvania doctors were facing a crisis. Four medical malpractice insurance companies had failed in the last decade, including the state’s largest carrier. Another commercial insurer ceased writing the liability coverage. Market forces and jury awards against physicians and hospitals were triggering 200 to 300 percent annual premium increases. Between 1999 and 2002, policyholders using Pennsylvania’s insurer of last resort rose from 212 to 1,547, a 730 percent increase. The state legislature passed a bill providing $220 million to help doctors pay for coverage – if they could find it.

Doctors in nine counties in central Pennsylvania got together to address the problem. Statistics showed huge jury awards coming from cases in Philadelphia and Pittsburgh, much different from the conservative legal climate in their area. A lawyer who defends doctors in Harrisburg told the local Patriot-News that to get a jury award in the area, “you have to really screw up.” The physicians formed Central Pennsylvania Risk Retention Group, pooling funds to cover their own malpractice risks.

The new entity became one of nine licensed between 2002 and 2004, joining a trend that has diverted 22 percent of malpractice coverage to this alternative mechanism. The state’s hospitals, like many around the country, have faced similar issues and skyrocketing costs. A 2002 survey showed Pennsylvania hospital premiums increasing that year by 80 percent. But today, a third of state hospitals are covered through a captive insurer, so “their premiums are internal rather than market-mandated.”

Risk retention groups and captive insurance programs are two growing forms of alternative risk funding mechanisms that are used to address problems of price, capacity or availability of insurance coverage. When the insurance industry experienced the hard market end of its cycle at the turn of this century, risk managers and corporate leaders sought out such mechanisms to help mitigate the effects of contracting coverage and ballooning costs. Recent changes in law and tax regulations are making some of these alternative risk financing methods even more attractive. ______________________________________________________________________

Defining Alternative Mechanisms

Risk management – the corporate function that purchases insurance and crafts alternative risk financing – has been utilizing self-insurance and loss sensitive programs for many years. At its most basic, self-insurance is simply planning to pay for losses out of your own pocket rather than purchasing an insurance policy. A sound self-insurance program uses actuarial methods to calculate the severity and frequency of losses, then sets aside funds to pay claims.

Reducing the cost of risk has become a corporate mantra, and self-insurance or loss-sensitive programs are among the most popular methods. Loss-sensitive programs offer a chance to reduce your exposure on certain risks. Using creative methods of financing risk, a corporation can retain some of the claims burden while buying coverage for exposure beyond its ability to pay. A company can simply accept higher deductibles or retention levels, above which their policies pay. Lower insurance rates may be obtained by instituting loss control and safety programs, which presumably also would lower claims costs.

A recent survey of corporate insurance buyers showed 92 percent increasing their deductibles, while 60 percent said they are self-insuring to some extent. Brokers surveyed confirmed the trend, saying commercial premium is being diverted to self-insurance mechanisms, especially for general liability, property and workers’ compensation lines. A.M. Best predicted that 50 percent of the U.S. commercial market would have migrated to alternative risk transfers by 2003, up from 40 percent in 2000 and 30 percent in 1996.

Formation of captive insurance companies or risk retention groups (RRGs) have become feasible for many larger corporations, and joining certain types of captives or purchasing groups is a viable option for many smaller entities. A new mechanism called a “special purpose vehicle” is being used by entities seeking backing from the financial markets.

Captives Growing Domestically

Captive insurance companies have the longest history of all the alternative risk mechanisms, having been in use on a limited basis since the 1920s. They gained popularity in the 1960s in offshore locations such as Bermuda, and in the late 1970s began to be allowed by state law in the U.S.8 Today they are an alternative market force. According to a new A.M. Best study, net premium growth for captives increased by 45 percent in the five years ending in 2003, and their admitted assets grew by 29 percent. A captive is formed by a corporation, association or group of businesses to write insurance for the entity or group. It covers the risk through capitalization by its parent company or members, and use of reinsurance. Utilizing a captive rather than a traditional carrier, the parent company is more directly involved in its insurance program, which offers benefits from underwriting and loss control to claims payouts and investments. Lines of insurance that are allowed to be covered by captives are set by state regulators, who must license the captive insurance company. Commonly used to cover general and specific liability, captives also can be used in some domiciles to insure auto, property and workers’ compensation. New uses for captives and other alternative risk financing methods are being tried, with some success.

________________________________________________________________________ A captive can take on a number of forms:

• Single-parent captive.

Sometimes referred to as a “pure captive,” it is a company that insures the risk of its parent company and its affiliates. Because it functions solely for the parent organization, it can set rates and provide loss control and risk-management plans that are closely tied to the company’s structure, product and corporate culture.

• Association captive.

As its name implies, this mechanism generally covers the risk of members of an association. Akin to a group or industrial captive (whose members might be from various industries), it operates much as a single-parent captive.

• Cell captive.

Also known as a sponsored captive or a protected cell captive, this version is operated by one or more sponsors, who provide the capital and surplus minimums required by the applicable laws. The captive covers the risk of each participant, segregating the participant’s liability in “protected cells,” so failure of one participant does not have an adverse effect on the others.

• Agency captive.

A captive formed and operated by an insurance agency, often with the backing of a carrier or reinsurer, it allows an agency to provide alternative risk mechanisms to its clients, and to share in the management and financial benefits of the service.

• Rent-a-captive.

An organization can reap the benefits of a captive without creating an insurance subsidiary. To do so, it rents capital and surplus from the rent-a-captive (RAC), which often is run by an insurance company or reinsurer. The purchasing organization may be able to reap underwriting profits and investment income. Higher costs are expected, as the RAC will charge fees for its operation, and unless it’s focused on one industry, its underwriting and loss control programs are not expected to be as attuned to the purchasing company’s industry. Regardless of type, the captive uses insurance-industry mechanisms to create and sustain its program. Many captives utilize a fronting company, which is an insurer that agrees to contract with a captive to provide an insurance policy acceptable to regulators. The fronting carrier provides services such as underwriting and claims handling, but cedes most if not all risk back to the captive through a reinsurance arrangement. __________________________________________________________________________

Often a fronting arrangement is used in states that do not allow captives to issue policies, and often used by smaller organizations that do not have the size or expertise to create a captive for themselves. A fee for providing the front, along with collateralization to offset the increased leverage required, will be sought by the fronting carrier. As the policy is reinsured by the captive carrier itself or by a reinsurer, the fronting carrier may assume little or no risk. Conversely, the long-tail nature of some risks and the potential for instability or failure of other parties to the alternative mechanism may mean the fronting carrier will experience risk well beyond the policy period. This has meant a recent tightening of the marketplace for fronting, with fewer carriers offering the service. A.M. Best estimated that six carriers accounted for 75 percent of the fronting market in 2002.

In an uncertain future that makes captives more attractive, risk managers must scrutinize the health of fronting carriers and fronting carriers must ensure that captive risks are adequately collateralized. But today, many captives are operating without fronts. This scenario is possible when regulators allow it and when the captive’s parent company can gain agreement with any parties of interest. For instance, when a lender or a landlord is the sole party requiring coverage, that party may agree to coverage from a non-fronted captive if the parent firm can show evidence of sufficient capitalization.

Using sound underwriting criteria as would a conventional insurance company is key to proving that the captive is bona fide. Some jurisdictions and foreign domiciles are particularly welcoming to captives. While Bermuda, the Cayman Islands and other foreign locations have traditionally been the domicile of choice, increasingly U.S. states are attracting captive formation. Vermont and Hawaii have had captive laws on their books for many years, but today 23 states have enacted captive “Using sound underwriting criteria as would a conventional insurance company is key to proving that the captive is bona fide.”

Aggressive development of state-based captive domiciles is expected to continue, by one estimate reaching 40 states by 2009. In recent years, premium volume for captives domiciled within the U.S. has grown by 20 to 25 percent annually. In 2002 a record number of new captives – more than 460 companies -- were formed.

By mid-2004, according to the Captive Insurance Companies Association, 4,835 captives existed worldwide. Bermuda holds by far the top domicile spot with 1,330 captives, the Cayman Islands has 644 and Vermont houses 507. Up-and-coming domestic venues include South Carolina, Arizona, and the District of Columbia. The nation’s capital city passed a captives law in 2001, and today has more than 30 captives registered, while South Carolina has licensed 89 captives since formation in 2000. There is a particular type of captive, called a risk retention group (RRG), that is not available in all domiciles. __________________________________________________________________________

RRG Popularity Resurges

RRGs are the most recently enabled form of alternative risk financing. Made possible by a federal law, the Products Liability Risk Retention Act of 1981, this mechanism was created initially by Congress to address a shortage of coverage for products liability. The law’s scope was expanded in a 1986 revision to become the Liability Risk Retention Act (LRRA).

According to the National Risk Retention Association, federal legislators felt the law was needed to facilitate group insurance programs. “It was presumed that this expansion would reduce costs, provide alternative mechanisms for coverage, and promote greater premium competition among general liability insurers,” says a primer from the NRRA. “It was believed that this expansion would encourage insurers to set premiums that would compete with the new formations created under the revised law.” RRGs were not commonly used in the 1990s due to the broader availability of liability insurance in an extended soft market, but with the turn to a hard market in 2000, their formation once again shot up, and their numbers are still rising at record rates. In 2003, 58 RRGs were formed and seven were retired, bringing the year-end total to an all-time high of 141.

Unique to the U.S., an RRG can be domiciled in any state, but typically will choose a state with captive laws, which will provide more favorable conditions to formation. Currently the federal statute allows RRGs to cover only liability exposures, although Congressional hearings were proposed in 2004 to discuss the statute’s expansion. 16 states permit RRGs, and two more have captive laws that are silent on their formation. Like the one created by doctors in central Pennsylvania, RRGs are formed by groups who have a similar business or profession and a vexing insurance problem. Medical malpractice is a good example of a significant problem being addressed by RRGs. In fact, A.M. Best reports that, of its 24 rated RRGs, 44 percent of the aggregate written premium covers medical malpractice. Under the LRRA, once an RRG is licensed in its domiciled state, it can cover members across the U.S. To do business in a state, it must submit a copy of its feasibility study created for its chartering state, and an annual financial statement. In an RRG, all policyholders also are shareholders. In addition to a premium, each member also pays a capitalization fee. Because it operates under federal statute and is exempt from most state laws, an RRG differs from a captive in that it does not need a fronting carrier. However, most states that allow RRGs require them to comply with capital and surplus requirements similar to a captive.



Purchasing Groups Wield Power

If a company or industry does not go the route of creating captives or risk retention groups, another hybrid option exists for managing their insurance costs. Purchasing groups buy coverage from traditional insurance carriers or risk retention groups, allowing insured to band together and negotiate for better rates or more favorable terms. Unlike an RRG, a purchasing group is not an insurance company, so its members do not underwrite the coverage or capitalize the group, and it does not buy reinsurance. But like an RRG, it is subject to rules governing the group, such as types of liability coverage available and membership requirements.

SPVs Tap Into Wall Street

In some cases, the insurance industry is perceived to not have enough capital to underwrite a particular risk, or is not willing to commit that capital, and involvement is being sought from the larger capital markets. Special purpose vehicles (SPVs) seek to tap into Wall Street through the mechanism of risk securitization. With an SPV, a captive or traditional insurance company is created to participate in a securitization for a specific risk, under the laws of a state that allows it. South Carolina recently created a securitization law to allow for such mechanisms. A pool of funds will be created by investors underwriting the risk, providing essentially the same function as reinsurance. The capital market analyzes the risk as it would a corporate credit risk and, using a bankruptcy trigger, prices its involvement commensurate with a bond issue. The outcome of risk determines the return on investment. For instance, if an SPV is created to underwrite hurricane coverage, investors will realize a greater return if no hurricane payouts are necessary within the coverage period.



Expanded Application, Increasing Benefits

Commercial insurance capacity has been one of the primary concerns sending risk managers to the alternative market, and events of the first few years of the 21st Century drove creation of captives and risk retention groups at a rate never before experienced. Rate increases in many commercial property and casualty lines began to appear in 2000 as the economy slowed and the insurance industry surplus dropped.

The hardening market was greatly exacerbated by the terrorist attacks on Sept. 11, 2001. Layered on top of rising litigation costs and class-action suits in such areas as construction defect and medical liability were concerns over terrorism liability and property losses, as well as a sharply declining economic picture, including decimated investment returns. Carriers fought for market share, and withdrew into core lines of business, raising rates and tightening terms and conditions. As it became more difficult for companies to find needed coverage at affordable rates, captives became more popular than ever. Risk managers began to look for new uses for captives, among lines where coverage came at a dramatically increased cost from fewer and more selective carriers. Healthcare captives led the growth trend, followed by directors’ and officers’ coverage in the wake of corporate malfeasance scandals and property coverage for problems like mold that were churning up class-action lawsuits.

Whether fed up with uninsurable risks or cyclical insurance industry pricing, or seeing the rising premiums as irrational and opportunistic, more risk managers began seeking to become masters of their own destinies. Covering risks not available in the current conventional market, such as construction defect, may solve a major management headache. In the process, insuring through a captive can become a creative, proprietary way to handle special circumstances, even resulting in a competitive advantage.

Financial benefits also have provided an impetus for using alternative risk financing. The owner of a captive may capture underwriting profits if the insurance program is run effectively, but it does not have to be sensitive to profits or policyholder dividends as would an insurer. Investment income may be realized as well, although low returns in a recessionary economy limit the value of this benefit. According to A.M. Best’s August 2004 survey, captives had a better average investment income ratio than the industry for the five years ending in 2003. The report showed lower leverage factors and stronger liquidity ratios for captives than their industry counterparts too.

Frictional costs of an insurer’s overhead, expenses and profit are eliminated, and active management of the captive can result in lower operational costs as well. Direct access to the reinsurance market is another benefit available through the captive mechanism. Creative financing structures can add benefit to a relationship between a captive and its parent company. The captive can offer capital to the parent, providing as an alternative to bank loans and potentially offering funds at a better rate or with more attractive terms than are available commercially.

Tax advantages also provide corporate management a reason to consider captives. For instance, a captive can take a tax deduction on loss reserves, whereas a corporation itself could not take the deduction until paying out for the actual loss -- a significant advantage when reserving for such long-tail claims as occur under professional liability. Until recently, more lucrative tax structures were to be found in offshore domiciles, but the Internal Revenue Service and foreign government tax laws have leveled the playing field between offshore and onshore domiciles. More captives are taxed as domestic corporations in other countries as well, through new or expanded Controlled Foreign Corporations rules. While captives take advantage of the tax benefits accorded to insurance companies, a parent company rarely forms a captive primarily for tax reasons. Creation of a global entity overseeing insurance regulation, the International Association of Insurance Supervisors, suggests even further standardization of insurance regulation.

Although the benefits of alternative risk financing may be found in financing, investments and taxation, creation of a captive or other such mechanism is most often a reaction to actions by the conventional insurance market. Hard market conditions, in effect, add fluidity to insurance mechanisms. New mechanisms offer a risk manager choices in how to cover risk, and that availability of alternatives puts pressure on commercial insurers to do what they can to avoid losing business. The reaction may in turn be premiums priced more in line with demand. From a management standpoint, greater impetus than tax benefits, financing options or investment income may exist in the ability to elevate positive risk management goals in the firm’s operations. Leadership may become more focused on the risks inherent in their business, and thereby more effectively deal with them. ________________________________________________________________________

A risk manager directing the actions of a captive can enjoy such benefits as:

• Closer underwriting.

Since the captive is focused very specifically on covering one risk, it should have a better understanding of the risk, and be able to price it more exactingly than an insurance carrier that places the company in a bucket with other risks.

• Better loss prevention services.

While few insurers can offer loss prevention targeted to a specific industry, a captive can set up such a program, then offer incentives such as premium credits for participating insured.

• Lower overhead.

Servicing one industry or sometimes just one risk, the captive insurer can gain operational efficiencies.

• Response to evolving needs.

While a conventional insurer may focus on handling claims from purely a cost standpoint, a captive insurer may be close enough to the boardroom to consider factors such as public relations needs.

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In the case of the central Pennsylvania physicians, for example, an active loss control program became mandatory in order for a doctor to get liability coverage from the RRG. Elements of the program included documentation of medical practices, sharing risk information with patients, ensuring that patients are following treatment plans, and talking with patients who experienced bad outcomes. The RRG postulated that simply explaining and apologizing when a treatment did not yield the hoped-for results would reduce the likelihood of lawsuits.

“Tax advantages also provide management a reason to consider captives.”

Greater Risks, Tightening Rules

While multiple benefits are luring more risk managers toward alternative risk financing, all forms of self-insurance inherently carry more risk than being covered by a traditional carrier. Chiefly, the corporation will likely carry more financial exposure, either through higher retentions, capital investments into a risk retention group, or the potential for exposure through captive insolvency.

Also, the start-up costs of creating a captive, which can run to six-figures, must be factored into the equation, along with the funds necessary for capitalization and the availability of a line of credit to satisfy a requisite surplus ratio. Undercapitalization is a contributing factor in the demise of some captives, making active oversight by the parent essential. Along with the explosive popularity of risk retention groups, states have begun requiring higher levels of capital and surplus. Ongoing expenses, such as hiring a third party administrator and experts to handle claims, also are factors in the captive’s operations, adding to necessary management.

Even though better able to control the costs of its insurance policies, the traditional market will still influence a captive’s program if a fronting carrier is required. Today there are fewer insurers willing to offer fronting coverage, and those remaining in the market have increased their fees. Surety carriers also have some control over the destiny of a captive. In some states, if a company wants to self-insure for workers’ compensation, the regulator will require proof of the ability to pay claims, in the form of a surety bond. Those bonds are becoming more expensive and less available.

“Companies tend to forget when they form a captive that they have transformed themselves into an insurance company,” said Robert Hartwig, chief economist for the Insurance Information Institute, in an August 2003 article in London-based “Reactions” magazine. And just like insurers, he said, captives can “go belly up.” The number of captive liquidations were 322 in 2002, an all-time high and up from 202 in 2001, according to A.M. Best. If the captive is foundering, its parent company assumes more risk and could find itself saddled with more costs, making additional capital infusions just to keep the entity afloat. An RRG, which operates under federal laws, will not be covered by the domiciled state’s guaranty association, increasing the financial risk of failure for its policyholders.

Perhaps of a secondary concern, but still carrying the possibility of a financial impact, is the post-Enron malfeasance scandal possibility that a company will experience negative public relations exposure if its captive is domiciled offshore. Although the federal Sarbanes-Oxley Act on accounting reform has had little practical impact on operating a captive, the image of a U.S. corporation seeking to avoid domestic taxes and regulatory oversight could create the appearance of impropriety even if none exists. While single-parent captives are chiefly looking after their own reputation, a segregated-cell captive with an offshore location may not be as attractive to potential clients due to image concerns about going offshore.

Entities considering creating a captive may take into consideration such possible public scrutiny when selecting a domicile, which may somewhat explain the growth in onshore locations. Managers of existing captives might face costly and time-consuming steps to avoid this problem. Shuttering an offshore captive or “redomesticating” it to a U.S. domicile requires time, costs and the approval of fronting carriers and policyholders.

New captives or those moving onshore will need to consider a number of factors in choosing a domestic location. Some insurance departments that recently entered the captive marketplace do not have the experience of a Vermont or Hawaii regulator, and may not offer the wise evaluation or counsel that can be gained by the decades of experience available behind the regulator’s desk in Bermuda. Although federaloversight of insurance was being debated by Congress in 2004, regulation is still a state function, and it is far from standardized, so professional counsel on formation issues is advisable. ______________________________________________________________________

Creative, Expanding Uses

The many forms of alternative risk financing have attracted creative applications, and there is good reason to believe that new uses will continue to surface and make the mechanisms ever more useful. Although the insurance marketplace continues to address the need for terrorism coverage, and the U.S. government has committed to reinsuring catastrophic losses through the Terrorism Risk Insurance Act of 2002, a gap still exists between need and availability. Nuclear, biological and chemical terrorism are not covered through the insurer/government offerings, nor is domestic terrorism. San Antonio-based insurer USAA created a captive that, among other things, writes a “difference-in-conditions” terrorism policy to close that gap for its parent company.

Today captives are being considered for covering employee benefits, such as reinsuring long-term disability plans, accidental death and dismemberment, and life insurance policies. Allowed only recently through an expanded interpretation of rules at the federal Department of Labor, companies are gaining exemptions from the Employee Retirement Income Security Act of 1974 (ERISA) rules about self-funding pension and benefit plans. After two rulings in favor of using captives, the department enacted a streamlined process that will reduce the time needed for an exemption from two years to three months. The positive rulings and reduced application time, coupled with the continual double-digit increases in health care costs, make it likely that more parent companies will seek to shift a portion of the company’s health-care burden to the alternative market.

Alternative market mechanisms such as captives and risk retention groups may be tapped for other emerging uses, such as shoring up pension liabilities in funds that were hard-hit by the stock market decline of recent years. If Congress again approaches the proposed expansion of the Liability Risk Retention Act. RRGs could be prresented the opportunity to fund nearly all lines of commercial insurance except workers’ compensation, a broad expansion from the present law that allows coverage of liability risks.

It is likely that the popularity of captives will continue too, both domestically and offshore. As U.S. venues increase and become more sophisticated, they also are competing for desirable new captive accounts. Offshore, captives are finding their way to new locations. In June 2004, the first captive insurance company in the Middle East was licensed in Bahrain.

The expansion of alternative risk financing vehicles offers corporate insurance buyers an opportunity to build more robust enterprise risk management programs and provide creative solutions to lessen the effects of the cyclical insurance market. For the risk manager, captives and risk retention groups are flexible financial tools that can soften the blow of a hard market while enhancing loss control, continuity of operations and asset preservation. With proper structure and diligent oversight, they can be useful self-insurance mechanisms offering a positive contribution to the bottom line.



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NOTES:



ACC gives thanks to Crawford and Company for their detailed insight and wealth of knowledge afforded to the industry along with:

1 “Medical Malpractice: Recent Developments,” http://www.iii.org/media/hottopics/insurance/medicalmal/, Insurance Information Institute, New York, September 2004 2 “Pennsylvania Physicians Form Alliance to Cut Rates for Malpractice Coverage,” The Patriot-News, Harrisburg, Penn., Dec. 14, 2003 3 Ibid. 4http://medliabilitypa.org/research/report0603/UnderstandingReport.pdf, accessed June 22, 2004 5 “Buyers Boost Loss Control, Risk Retention,” Sam Friedman, National Underwriter, Erlanger, Ky., Nov. 10, 2003 6 Ibid. 7 www.visibility.com, accessed May 2002 8 “Captives from A to Z,” http://www.captive.com/CaptiveResources/captive_basics.html, accessed July 2, 2004 9 “Domestic Captives: Can Solid Results Be Sustained?” Special Report, A.M. Best, Oldwick, N.J., Aug. 9, 2004 10 Glossary, www.cicaworld.com, accessed June 24, 2004 11 “Putting Up a Good Front,” William N. Curcio, Best’s Review, Oldwick, N.J., October 2003 12 Ibid. 13 Interview with Michael R. Mead, CPCU, Vice President, Arizona Captive Insurance Association, and Principal, Crusader International Group, Chicago, July 2, 2004 14 “Held Captive,” Reactions, London, August 2003 15 “Captives and Captive Management,” Malcolm Cutts-Watson et al, Willis Marketplace Realities and Risk Management Solutions, New York, 2004 16 “The Captives Migration,” Paul Smith et al, Risk Management, New York, August 2003 17 www.cicaworld.com, accessed June 24, 2004 18 “Liability Risk Retention Act,” http://www.nrra-usa.org/about_faq.html, accessed June 24, 2004 19 “Risk retention and purchasing groups,” http://www.rrr.com/education, accessed June 22, 2004 20 “Domestic Captives: Can Solid Results Be Sustained?” Special Report, A.M. Best, Oldwick, N.J., Aug. 9, 2004 21 “Risk retention and purchasing groups,” http://www.rrr.com/education, accessed June 22, 2004 22 “Liability Risk Retention Act,” http://www.nrra-usa.org/about_faq.html, accessed June 24, 2004 23 Interview with Robert H. Myers Jr., Of Counsel, National Risk Retention Association, and Partner, Morris, Manning & Martin, Washington, D.C., July 2, 2004 This r eport was publi s hed in October 2004 for clients of Crawford & Comp any. For more in f o r mation or additi onal copies, visit our web site at crawfo rdandc o m p a ny.co m or cont a c t Crawfo r d ’s Marke ting Department at (80 0) 241-2541. 5620 Glenridge Drive N.E. Atlanta, GA 30342 ww w.crawfordandcompany.com 24 “Alternative Risk Transfer,” Carl Groth, Willis Marketplace Realities and Risk Management Solution, New York, 2004 25 “Held Captive,” Reactions, London, Aug. 2003 26 Interview with Kevin M. Quinley, CPCU, Vice President, Risk Services, Medmarc Insurance Co., Fairfax, Va., July 1, 2004 27 Interview with Michael R. Mead, CPCU, Vice President, Arizona Captive Insurance Association, and Principal, Crusader International Group, Chicago, July 2, 2004 28 “Domestic Captives: Can Solid Results Be Sustained?” Special Report, A.M. Best, Oldwick, N.J., Aug. 9, 2004 29 http://www.captive.com/newsstand/jlcovt/ReinsuranceReview.html, accessed July 1, 2004 30 “Tax Rules Slowly Improving For Captives,” David Pilla, BestWire, June 14, 2004 31 “Captives and Captive Management,” Malcolm Cutts-Watson et al, Willis Marketplace Realities and Risk Management Solutions, New York, 2004 32 Interview with Robert H. Myers Jr., Of Counsel, National Risk Retention Association, and Partner, Morris, Manning & Martin, Washington, D.C., July 2, 2004 33 Interview with Kevin M. Quinley, CPCU, Vice President, Risk Services, Medmarc Insurance Co., Fairfax, Va., July 1, 2004 34 “The Captives Migration,” Paul Smith et al, Risk Management, New York, August 2003 35 “Pennsylvania Physicians Form Alliance to Cut Rates for Malpractice Coverage,” The Patriot-News, Harrisburg, Penn., Dec. 14, 2003 36 Interview with Michael R. Mead, CPCU, Vice President, Arizona Captive Insurance Association, and Principal, Crusader International Group, Chicago, July 2, 2004 37 “Captives and Captive Management,” Malcolm Cutts-Watson et al, Willis Marketplace Realities and Risk Management Solutions, New York, 2004 38 “The Captives Migration,” Paul Smith et al, Risk Management, New York, August 2003 39 “Domestic Captives: Can Solid Results Be Sustained?” Special Report, A.M. Best, Oldwick, N.J., Aug. 9, 2004 40 “Held Captive,” Reactions, London, August 2003 41 “The Captives Migration,” Paul Smith et al, Risk Management, New York, N.Y., August 2003 42 “Some Offshore Captives Feel Pull of Relocating to U.S. Domiciles,” Sally Roberts, Business Insurance, Chicago, March 29, 2004 43 Interview with Michael R. Mead, CPCU, Vice President, Arizona Captive Insurance Association, and Principal, Crusader International Group, Chicago, July 2, 2004 44 Interview with Robert H. Myers Jr., Of Counsel, National Risk Retention Association, and Partner, Morris, Manning & Martin, Washington, D.C., July 2, 2004 45 “Mandel Sees Use for Captive Beyond Terrorism Cover,” Dave Lenckus, Business Insurance, Chicago, April 19, 2004 46 “Captives Should Broaden Their Focus,” Michael J. Moody, Rough Notes, Carmel, Ind., September 2003 47 “Captive Benefits Plan Getes Tentative OK,” Jerry Geisel, Business Insurance, Chicago, May 10, 2004 48 “Alternative Risk Transfer,” Carl Groth, Willis Marketplace Realities and Risk Management Solution, New York, 2004 49 “RRGs' global hegemony; Alternative Risk,” Roger Crombie, Risk & Insurance, Horsham, Penn., May 1, 2004