Alternate Risk Transfer
Explained
Alternate Risk Transfer ("ART") embodies an array of risk management and transfer strategies that differ from conventional insurance policies. Whilst ART has been around for decades, recently it has gained strong traction with companies struggling to find capacity for niche risks or companies looking to more efficiently manage their risk.
At SPECIALISED CREDIT, we assist companies in creating distinctive insurance, reinsurance, and unconventional risk management solutions catering to an expansive range of corporate and financial clientele. Our specialty lies in assisting our clients in managing their most intricate risks with tailor-made, multi-line, and multi-year risk finance policies covering a wide array of risks.
Whilst ART encompasses many different formats and use cases, SPECIALISED CREDIT predominantly structures the policies that are placed into cell captive insurers. A captive insurance entity is a legitimate, licensed (re)insurance organization, owned by a company outside the insurance sector, that provides insurance or reinsurance for the risks of its parent company and/or subsidiaries. In essence, it is a structured way to finance self-insured risks.
BENEFITS OF ALTERNATE RISK TRANSFER
Cost
If designed optimally, ART can significantly Lower the total cost of risk. It allows companies to reduce insurance costs by retaining underwriting profits and investment income. If carefully managed, this will reduce the long term cost of insurance or risk.​
Risk Surplus
In cases where risk management is strong or predictable, ART can be utilised effectively to build up strong reserves. As your continue to retain more risk, you can accumulate reserves from strong underwriting periods and build up a cushion to offset potential future losses.
Risk extension
ART Enables the incorporation of unconventional risks into your comprehensive risk transfer approach. The strategies often extend the scope of risk coverage beyond what's available in the traditional insurance market. As such you can tailor policies to cover specific, often uninsurable risks, thereby enhancing business resilience.
Capacity
Alternate risk transfer provides an increased capacity for risk consumption. By customizing insurance policies, businesses can cover unique risks that traditional insurance might not, offering either an edge in a volatile market or excess capacity that most other companies cannot access.
Risk enhancement
In cases where evidence of risk coverage is needed, ART can provide you with rated paper to satisfy the requirements. ART can enhance risk management by providing clear visibility into risk exposures. This enables more informed decision-making and improves the overall risk profile and strategic planning.
Stabilisation
ART Assists with spreading risk and stabilising your earnings over several years and allows companies to gain control over insurance costs, leading to greater cost stability. By retaining risk, businesses can avoid market fluctuations, ensuring consistent premium rates and predictable business profitability
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Distribution Company - Captive Insurance for Credit Risk
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A prominent wholesale distribution company with significant revenue in debtor receivables faced substantial credit risk, which traditional credit insurance could not adequately address due to high premiums and insufficient coverage.
To manage this, the company established a captive insurance company, allowing for tailored policies to cover specific credit risks, such as debtor default and late payment. This approach offered more comprehensive coverage, reduced insurance costs by retaining underwriting profits, and provided financial stability by investing funds set aside for credit losses.
By employing captive insurance, the company gained greater control over credit risk management, which significantly improved its overall business resilience and performance.