ORLANDO, Fla.—A sizable majority of captive owners surveyed in the Captive Insurance Cos. Assn.'s annual fronting survey find fronting premiums “reasonable,” though the percentage of those reporting that their fronting insurers require collateral has grown from last year.

Of those surveyed, 89% characterized fronting prices as reasonable, with 11% calling fronting costs expensive. The need for admitted paper was the reason given most often by captive owners for using fronting insurers, cited by 85% of respondents, with regulatory compliance the next most common reason, cited by 46% of respondents.

Most of those surveyed reported no increase or a decrease in fronting costs from the prior year, with 48% reporting no change in costs, 20% reporting a cost decrease and 30% reporting an increase of less than 10%.

Captive owners reporting increased collateral requirements increased to 93% in this year's survey, compared with 85% last year. Letters of credit were the most frequently required type of collateral, cited by 76% of respondents, with 40% mentioning trust accounts, 28% citing cash and 8% mentioning parental guarantees.

All respondents rated fronting as very important or important to their captive program, with 78% saying it was very important to have an A-rated fronting company. And most seem happy with the value of their fronting relationships, with 63% of those surveyed describing that value as excellent and 37% calling it moderate.

The survey also looked at captives' reinsurance buying, with 56.6% of those participating indicating they purchase reinsurance. The percentage was smaller among single-parent captives, however, with only 39.3% of pure captives indicating they purchase reinsurance.

Of those buying reinsurance, 24% said they consider the price expensive, with 67% calling it reasonable and 9% calling it inexpensive. Nearly one in five—19%—said their reinsurance costs were the same in 2009 as in 2008, while 43% said their reinsurance costs increased and 38% said their reinsurance costs decreased.

Nearly half of those surveyed said economic conditions have had a negative impact on their captive, with 14.5% strongly agreeing with that assessment and 30.9% agreeing. Meanwhile, 25.5% disagreed with that statement, 5.5% strongly disagreed and the remaining 23.6% neither agreed nor disagreed.

Again, the results were somewhat different when the responses of only single-parent captives were considered, with 6.9% strongly agreeing that the economy was having a negative impact on their captive and 24.1% agreeing, while 10.3% strongly disagreed, 27.6% disagreed and 31% neither agreed nor disagreed.

In terms of their captives' investment returns, 53% reported investment yields of 2% to 3%, 13% reporting yields of 4% to 5%, 22% reporting yields of 0% to 1% with the remainder reporting yields in various ranges above 6%. None of the respondents reported negative investment yields.

As was the case in last year's survey, collateral concerns were given as the top challenge facing captive owners, cited by 27% of those surveyed. Regulatory issues were mentioned by 16%; policyholder retention and growth cited by 16%; and tax, fronting and expanded utilization, cited by 7% each.

Of those participating in the survey, 53% were single-parent captives; 18%, risk retention groups; 16%, segregated cell captives; and 13%, association captives. Nearly three-quarters—73%—were domiciled in the United States, with 27% offshore.

Most of those surveyed were well-established captives, with 71% in existence for six or more years, 27% for one to five years and 2% doing business for less than one year.

CICA will publish the full report of the fronting survey results in about three months. It will be available free to CICA members and for purchase by non-members at the CICA Web site, www.cicaworld.com.