Plumeri stresses value of captives

Joseph J. Plumeri

MIAMI—Captive insurance is an important tool for companies seeking business resilience, perhaps the most important attribute for success in today's environment, Joseph J. Plumeri, chairman and CEO of Willis Group Holdings P.L.C., said last week.

Giving Tuesday's keynote presentation at the 2012 World Captive Forum at the Doral Golf Resort & Spa in Miami, Mr. Plumeri said, “I believe the whole world today is about anticipation vs. resilience,” adding that he considers resilience the more valuable attribute because “I don't believe anything is predictable.”

“Resilience acknowledges that the future is unknow-able,” Mr. Plumeri said. Resilience also relies on decentralized decision-making, and builds organizations and allows them to bounce back from adversity, he said.

Captives, Mr. Plumeri said, are an example of anticipation and resilience, beginning as an exercise in anticipation as risk managers looked for an alternative to traditional insurance markets, then creating business resilience as they became a tool for their parent companies to manage an unreliable insurance market and respond to changing exposures.

The Willis chairman said captives are more important than ever in today's business environment, because the risks businesses face are changing not only in severity and frequency but also in kind. In a world of unknowable emerging risks, a captive allows companies to control their own destiny and deal with changing market forces, Mr. Plumeri said.

Saying that “resiliency is about managing extreme events,” Mr. Plumeri noted that it's a more essential attribute than ever to succeed in an “age of black swans.” Citing exposures such as loss of customers, regulatory investigations, reputational risk, and talent and skill shortages, he noted those risks are “all difficult or impossible to insure, which demands that you be resilient.”

In Wednesday's keynote, Clyde Wardle, senior emerging markets foreign exchange strategist at HSBC Securities (USA) Inc. in New York, offered economic observations.

In Europe, he predicted a solution to the euro crisis. “We do think that, ultimately, Europe will find a solution,” Mr. Wardle said. “History has shown the will to solve such crises and there's a recognition that the alternative is worse.”

In the U.S., “Since October we've seen generally upside surprises with U.S. data,” he said. “That being said, we haven't really seen any improved expectations in terms of growth for this year.”

Geopolitical risks remain “important to monitor,” he said. And while emerging market countries aren't immune to economic stresses, “Their fiscal balances are in much better shape, so they have room to pump prime their economies,” Mr. Wardle said.