Why join a Captive Insurance Company?
The insurance marketplace commonly goes through its “hard and soft” cycles where premium fluctuations have little relation to individual loss experience. By pooling your resources and creating your own captive reinsurance company, these swings can be avoided, making your costs more predictable. Also, by pooling your resources, you can lower costs and retain investment income, both advantages your current insurance company retains.
Am I putting my company in financial risk by entering a captive?
No you are not. If all you were doing is each paying a premium into a fund in a bank and hoping your losses didn’t exceed the fund, then yes it would be very risky. If the program is structured properly, using a licensed and admitted insurance company to act as the policy-issuing company and an equally strong reinsurance company to insure the catastrophic losses, the risk is minimal. In this manner, all you are doing is assuming risk in the smaller predictable loss layer.
Assuming a captive is profitable, will there be dividends? When? Will there be some relationship between loss experience and dividends?
Members who have profits in their respective loss funds will have those profits returned to them along with the investment income earned for that policy period.
Will profitability (if any) result in a decrease in premium rather than dividends?
Funding for losses will be set by the captive’s independent actuary. Over a period of time, generally three to five years, captive pay-in premiums should decrease if losses are less than the amount being funded for. Conversely, if losses exceed funding, premiums will need to be increased. If the captive Board of Directors declares a dividend, it may be used to offset premium in the year it is declared or directly returned to the shareholder. It’s your decision!
How long must I remain in the captive to participate in profitability?
You will be only committed to the captive for only one policy period. There are no handcuff clauses in any programs which we offer. We do ask that when you join, you make a moral commitment for three years to give you an opportunity to learn and understand all of the workings of the captive.
Is there any potential for additional assessments if the underwriting results turn out not as well as planned?
We are able to quantify your company’s loss exposure as your loss fund will be established by the actuary. Any assessment will be driven by your own company’s loss experience. There is a defined basis for any assessment, also when and how they occur, as explained in our meeting. Assessments are limited and a maximum amount you will always know up front.
Who is on the Board of your captives? Will I be on the Board?
Each member of the captive will be on their Board of Directors. No service providers; brokers, captive manager, etc. would be on the Board. The Board will have committees responsible for loss control, finance, and underwriting.
How often will financial statements be prepared?
Semi-annual reports will be prepared and available for review by all members.
If you would like to learn more about Group Captives and if your company is a good fit, please contact Michael Regan for more information.