SCOTTSDALE, Ariz. — The use of captives to insure stop-loss coverage for self-funded health benefits was the largest area of employee benefits interest among the participants in the “14th annual Captive Insurance Market Study” conducted by the Captive Insurance Companies Association.

While only a fraction of the 133 survey respondents reported actually funding employee benefits in their captives, a much larger group reported exploring several options in the intermediate term, according to the report, which was presented during a session at the CICA 2014 International Conference, held March 9-11 in Scottsdale, Ariz.

“Further delays, and continuing challenges, in the implementation of the Patient Protection and Affordable Care Act are causing ongoing uncertainties around the impact on various constituencies,” the survey report stated. “This has caught the attention of the survey participants, as stop-loss was by far the largest area of employee benefits interest expressed by this year's participants.”

The survey found that 12% of respondents already write stop-loss coverage in their captives, while 8.3% said they likely will do so within the next three years and 18.1% said using their captive for stop loss was possible in the next three years.

Among the other lines of employee benefits coverage respondents reported currently funding in their captives were: disability, funded by 5.3%; life, also by 5.3%; and accident and health, by 4.5%.

This year's captive market study also identified the top five challenges in owning a captive: regulatory issues, ongoing justification of the benefits of the captive to management, collateral, low interest rates and tax.

Despite these challenges, survey respondents reflected a high level of commitment to and appreciation of the benefits derived from their captives, the report found.

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• Forty-five percent of respondents reported the use of a fronting insurer for at least part of their captive programs, while 9% reported using a fronting carrier for their entire captive program.

• Two insurers — Schaumburg, Ill.-based Zurich North America and Cincinnati-based Great American Insurance Co. — were identified as the only two insurers that could meet both property/casualty and employee benefits fronting needs.

• Ninety-eight percent of respondents perceive the value of their fronting relationships as excellent or moderate. However, some degree of satisfaction was reported with respect to claims handling, policy issuance turnaround time and regulatory premium tax compliance.

• Fronting costs remained unchanged over the prior year for 60% of survey respondents, while 30% reported increases of up to 15% and 10% reported decreases of up to 15%.

• Fifty-nine percent of survey respondents reported that their captives purchase reinsurance, and 42% reported purchasing this coverage from a company other than an affiliate or their fronting insurer. A variety of Bermuda-market reinsurers were the predominant choice for 85.6% of captive reinsurance purchasers, followed by Lloyd's of London, cited by 52.7% of survey participants.

• Approximately half of respondents reported no change in the cost of reinsurance from the prior year, while 26% reported increases, most of up to 15%, but some reported price increases exceeding 25%. However, 21% of survey respondents said their reinsurance premiums decreased, with cuts hovering below 5%.

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• More than one-quarter of survey respondents reported they marketed some portion of their captive program this year. The chief reasons cited for doing so were pricing increases, cited by 25%, and service issues, also cited by 25%, while 17.5% reported doing so routinely as part of good captive governance. Other reasons reported for shopping some portion of captive programs were: collateral issues, cited by 12.5% of survey respondents; claims oversight issues, cited by 7.5%; withdrawal of insurer, 5.0%; claims oversight issues, 2.5%; insurer change in leadership, 2.5%; and other, 2.5%.

The survey was conducted between Dec. 10, 2013, and Feb. 7, 2014, and included responses from 133 captive owners, 59.4% of which owned single-parent captives, 17.3% segregated cell captives, 15.0% risk retention groups, 6.8% association captives and 1.5% agency captives.

CICA members can receive the full compiled results on the members-only section here.