What happens if a captive faces large claims during a market crash?
Insurance portfolios are generally built more conservatively than private ones.
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.
Meskunas is candid that he is partly speaking his own book here. He describes prospective captive owners telling him they will simply use the family financial adviser who has helped them for thirty years, and his response is to ask whether that adviser manages money for insurance companies.
His claim is about fit rather than competence. The investments an adviser would reasonably present to a private client are not, in general, what an insurance company portfolio should look like.
Key takeaways
Captive portfolios are generally more conservative than private wealth portfolios.
Meskunas argues the relevant question about an adviser is whether they manage insurance company money.
He points to 2008 as the reference case for simultaneous market and claims stress.
On the specific scenario of a wipeout loss landing in the same year as a wipeout market, he reaches for 2008, when the S&P 500 fell around forty percent in a relatively short period, and notes that individual investors were badly hurt.
The implication he draws is that a conservatively built insurance portfolio behaves differently in that moment than a growth oriented private one. That is his experience of how these portfolios are constructed rather than a guarantee about any particular captive's outcome.
From the conversation
Jack Meskunas
Managing Director, Oppenheimer
“captive insurance portfolios in general are more conservative than let's just say the average individual high net worth investor”
This answer begins at 35:09 of the full conversation. Watch or listen to the whole thing.
The 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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