In conversation
Jack Meskunas on Captive Insurance
How Captive Insurance Money Gets Invested: Float, Strategy and Risk
Jack Meskunas has spent the better part of twenty years on the investment side of captive insurance. In this conversation he follows the money: what happens to a premium dollar once it enters a captive, how an investment strategy gets designed around it, what float is and how a captive uses it, how the domicile constrains what the portfolio can hold, and what happens when large claims arrive during a market crash.
Questions answered
How is a group captive different from simply self-insuring?
According to Jack Meskunas, Managing Director at Oppenheimer, people who say they are self-insured frequently mean they carry no policy and would absorb a loss themselves. He describes that as gambling with the balance sheet rather than insurance. In a group captive, by contrast, the members are both the insureds and the owners, which he says generally aligns everyone's incentive to control risk.
Watch from 5:56What happens to premium after it enters a captive?
According to Jack Meskunas, Managing Director at Oppenheimer, the captive manager sets premium through underwriting and actuarial analysis. Once premium arrives, service providers are paid and reinsurance is purchased. What is left covers required statutory capital and surplus, and both are typically invested around the risks the captive actually insures.
Watch from 10:06What goes into designing a captive's investment strategy?
According to Jack Meskunas, Managing Director at Oppenheimer, liquidity is extremely important in a captive, particularly where claims are frequent and small. He describes a progression from a cash buffer for operating bills, into fixed income of varying maturities, with bonds timed to mature roughly when claims are expected. He is blunt that holding everything in a money market would be the wrong answer.
Watch from 12:50How does a captive's domicile affect what it can invest in?
According to Jack Meskunas, Managing Director at Oppenheimer, insurance in the United States is run at state level rather than federally, so there is no single federal capital requirement. Each domicile sets its own rules and applies them with a lighter or heavier hand. He draws particular attention to the distinction between an investment being allowable and being treated as relevant.
Watch from 17:00What is insurance float, and how does a captive use it?
According to Jack Meskunas, Managing Director at Oppenheimer, float is the premium a captive holds before it has to pay claims. The money is not needed the day it arrives, so it can be invested instead of sitting in a checking account. Meskunas says the returns build up the assets inside the captive, and that surplus can eventually be paid back to the insureds.
Watch from 20:27What is IBNR, and why does it matter for a captive?
IBNR stands for incurred but not reported. As explained in this conversation, it covers claims already known about, with an estimate attached, that have not yet been settled. Jack Meskunas, Managing Director at Oppenheimer, adds that estimates can develop over time, and that telling the financial advisor early gives them months to position the portfolio rather than being asked for the money on a Friday.
Watch from 31:36What happens if a captive faces large claims during a market crash?
According to Jack Meskunas, Managing Director at Oppenheimer, captive insurance portfolios are in general more conservative than those of the average high net worth investor, who he says tends to take considerably more risk. His argument is that an insurer's portfolio has guardrails a private client portfolio does not, because the money has to be there to pay claims.
Watch from 35:09Who is a group captive not right for?
According to Jack Meskunas, Managing Director at Oppenheimer, existing owners and the captive manager vet anyone joining a group captive, and the first thing they ask for is claims history. In his view a business with a severe or ongoing loss record does not belong in a captive, because the arrangement would not pay for itself at the premium that business would contribute.
Watch from 38:55The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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