CAPTIVES, RRGS HOLDING STEADY

Last week's stock market turbulence sent few ripples through the alternative risk financing world.

The equity market turmoil did not faze most alternative risk financing vehicles. In fact, the resultant boost in bond prices, even if temporary, may have helped some risk retention groups and captives, experts point out.

"Risk retention groups, particularly those with shorter-tail exposures, are pretty darn conservative investors. If anything, assuming that they were in bonds, perversely it might have increased them a little for a little while. But I really don't think it had that much effect," said Jon Harkavy, vp and general counsel in the Arlington, Va., office of U.S. Risk Services Inc., a Sarasota, Fla.-based alternative insurance market administrator.

"Group captives, I would suggest, are similar in many ways to risk retention groups-pretty conservative," he added.

The chief captive regulator of the nation's largest captive domicile agreed that the impact from the fluctuations appeared to be minimal.

"Eighty percent of our captives are pure captives. The only concern we would have, if any, is with our group captives. We have restrictions on investments in stocks at 10%, and most of them don't even have that. It's just not a big issue with our group captives. If the groups do have a small portion of their investments in stock, the market's still up for the year," said Len Crouse, director of captive insurance for Vermont.

"It's not an issue," Mr. Crouse added.

Mr. Harkavy said the turbulence could have had an impact on some single-owner captives, given that their parent companies control the investments.

The assistant treasurer responsible for risk management of the parent company of a single-owner captive said that in the case of his captive, the market turmoil had no effect.

"It didn't have any effect on our captive, either in how we manage it or how we invest," said John Spies, assistant treasurer of Harnischfeger Industries Inc., a St. Francis, Wis.-based mining, materials handling and paper machinery equipment manufacturer.

He said Harnischfeger's Vermont-domiciled captive, Industries Insurance Inc., invests mostly in commercial paper and some government securities. "There was no impact," he said.

Mr. Harkavy said: "I think the more interesting speculation is what effect it will have on the insurance market generally. If you don't have investment income, the market hardens."

"But if you take a look at it even two days ago, the market was still 16% ahead of where it was a year ago," Mr. Harkavy said.