What is Alternative Risk Transfer?

What is Alternative Risk Transfer?

Alternative Risk Transfer (ART) solutions are thriving locally as they continue to allow the construction industry easier and cheaper access to the insurance sector. PCBS statistics indicate steady growth of this line of its business over the past nine years.

ART grew out of a series of insurance capacity crises in the 1970s through the 1990s that drove purchasers of traditional coverage to seek more robust ways to buy protection. ART allows individual contractors to choose the most suitable cover that best matches their risk profile, giving them freedom to finance that risk utilising non-conventional, flexible and more profitable self-insurance style structures. Rates assigned and premiums paid by contractors are a direct reflection of that contractor’s business

ART allows for the establishment of Captive Insurance companies by firms and re-insurers to receive premiums. The premiums are generally held and invested as a ‘funded’ layer of insurance for the parent company.

Companies therefore actively participate in their own various types of Insurance Risks. Through sharing in the risk, in addition to having an opportunity to earn investment income and reducing overall insurance costs, ART allows contractors to accrue reserves for additional capacity that might be required for new projects obtained during the period of facility granted.

What are the benefits?

Together with the largest specialist in cell captive insurance, Guardrisk Insurance Company, PCBS (Pty) Ltd has facilitated the establishment of a Contingency Policy which is issued with each guarantee. Premiums for the Contingency Policy are collected by PCBS and ceded to Guardrisk and afford the client the following benefits:

  • The Contingency Premium earns investment income at current rates.
  • The Contingency Premium paid as a security for a specific guarantee will be refunded, in the event of the guarantee being returned.
  • The Contingency Premium will be refunded upon return of the original guarantee in the event of the cancellation of the Facility.
  • The Contingency Policy allows the client to accrue for unforeseen risks in the event of a claim in respect of the issued guarantee.
  • The Contingency Policy allows the client to accrue reserves for additional capacity that might be required for new projects obtained during the period of the facility granted.
  • The Contingency Premium paid into the Contingency Policy is considered an insurance expense and therefore deductible for Company Tax purposes.
  • The Contingency Premium is inclusive of V.A.T.

A management fee of 6% is applicable, based on the total premium paid.

The above management fee covers the following administrative functions:

  • The issuing of policy documents
  • Administration – invoicing, monthly statements
  • Monthly monitoring of returns

Want to know more?

For more information on Alternative Risk Transfer speak with one of our experts:

+27 11 482 2592/2101