Captives – Alternative or Obstacle
Download
1 / 23

November, 2003 - PowerPoint PPT Presentation


  • 217 Views
  • Uploaded on

Captives – Alternative or Obstacle. Captive Primer Presented by John Yonkunas. November, 2003. Captive. Unfunded Self Insurance. Deductible Plan. Retro Plan. Guaranteed Cost . Risk Financing Continuum. Captive Defined. A closely held insurance company controlled by its owners …

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'November, 2003' - eman


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Captives – Alternative or Obstacle

Captive Primer

Presented by

John Yonkunas

November, 2003


Risk financing continuum

Captive

Unfunded

Self

Insurance

Deductible

Plan

Retro Plan

Guaranteed

Cost

Risk Financing Continuum


Captive defined
Captive Defined

A closely held insurance company controlled by its owners…

... offering insurance products or reinsurance support to its owners as the principal beneficiaries...

...and the owners-policyholders actively participate in decisions influencing underwriting, operations and investments.


Historical growth of captives worldwide

Source: Captive Insurance Company Reports and Best’s Captive Directory

Historical Growth of Captives Worldwide


4 837 captives worldwide year end 2002 figures

WESTERN HEMISPHERE Captive Directory

DOMICILES

EASTERN HEMISPHERE

DOMICILES

  • Bermuda 1,426

  • Cayman 642

  • BVI 269

  • Barbados 207

  • Turks & Caicos 74

  • Bahamas 25

  • U.S.

  • Vermont 454

  • Hawaii 102

  • Colorado 20

  • Georgia 16

  • Illinois 14

  • South Carolina 12

  • Tennessee 10

  • Arizona 10

  • New York 9

  • Other U.S.

  • states/domiciles 140

  • Other 205

  • Total 3,635

Guernsey 408

Luxembourg 280

Ireland 209

Isle of Man 173

Singapore 51

Switzerland 41

All other 40

Total 1,202

Source: Best’s Captive Directory

4,837 Captives Worldwide (Year-End 2002 Figures)


2002 new captive formations by domicile

Domicile Captive Directory

Cayman Islands

Bermuda

Vermont

Guernsey

British Virgin Islands

South Carolina

Barbados

Ireland

Hawaii

Others

Total

2002 Captive Formations

97

79

70

49

45

20

19

18

16

49

462

2002 New Captive Formations by Domicile

Source: Best’s Captive Directory


Number of captives by type

Type of Captive Captive Directory

Pure Captive

Connected Business

3rd Party Business

Association Captive

Multi-Owner Captive

Risk Retention Groups

Rent-a-Captives (incl. Agency, Sponsored, and PCC)

Number of Captives

2003 vs. 2003

1366 1087

214 188

218 180

206 201

78 63

96 73

294 241

Number of Captives by Type

Source: Best’s Captive Directory


Types of captives
Types of Captives Captive Directory

  • Pure Single Parent

  • Related Business Single Parent

  • Unrelated Business Single Parent

  • Captive of Insurer

  • Association Captive

  • Multi-Owner Captive

  • Healthcare Captive

  • Life Insurer Single Parent

  • Rent-a-Captive

  • Risk Retention Group

  • Self Insurance Groups

  • Reciprocals

  • Agency Captive

  • Special Purpose Vehicles

  • Protected Cell Captive

  • Producer Owned Rented Captive


Categories of captives
Categories of Captives Captive Directory

  • Ownership & Control

    • Single Parent

      • Group/Risk Retention Group

        • Rent-A-Captive/Protected Cell Captive

  • Transaction – Offshore & Onshore

    • Direct

      • Fronted

  • Structure

    • Stock/Mutual

      • Reciprocal


  • Ownership & Control Categories Captive Directory

    10


    Single parent
    Single Parent Captive Directory

    • Insures the risk of the parent and sister companies

    • Includes predictable exposures & working layer

    • Offers unusual or uninsurable coverages

      • Punitive Damage

        • Terrorism

          • Business Risks

    • Assets Controlled by Treasury

      • Loan-Backs

        • Commercial Paper

  • Highly Leveraged


  • Group
    Group Captive Directory

    • Insures the risk of the members/policyholders

    • Includes predictable exposures for casualty coverages at low retentions

    • Does not typically offer unusual or uninsurable coverages

    • Assets Managed by Investment Manager

    • Moderately Leveraged

    • Higher Regulatory Scrutiny

    • Risk Retention Group – Federally authorized licensed carrier


    Rent a captive
    Rent-a-Captive Captive Directory

    • Reinsures the risk of members - Fronted

    • Includes predictable exposures

    • No unusual or uninsurable coverages

    • Assets Controlled by Sponsor/Owner

    • Ownership/Governance Limited

    • No Direct Capital – Indirect Capital for “gap” exposure

    • Protected Cell Captive – legal segregation of assets and liabilities


    Rent a captive insurance and reinsurance transactions
    Rent-a-Captive Insurance Captive Directoryand Reinsurance Transactions

    INSURED

    Insurance

    Premiums

    INSURANCE

    AGREEMENTS

    Insurance

    Policy &

    Claim Payments

    Preferred

    Dividends

    AGENT

    SHAREHOLDER

    AGREEMENTS

    Insurance

    Premiums

    Primary Layer

    Reinsurance Premiums

    Fronting

    Company

    Rent-a-Captive

    Primary Claim Recovery

    REINSURANCE

    AGREEMENTS


    Transaction Categories Captive Directory

    15


    Captives are established to either insure or reinsure risk

    … direct insurance Captive Directory

    Premiums

    Corporation

    Captive

    Coverage

    … reinsurance

    Premiums

    Fronting Fee

    Insurance

    Company

    Captive

    Corporation

    Reinsurance

    Coverage

    Captives are Established to EitherInsure or Reinsure Risk


    Captives as part of an integrated and complex risk financing program

    Carrier Captive Directory

    Captive

    Owner/

    Policyholder

    Insurance

    Reinsurance

    Excess

    Excess

    Excess

    Agreement

    Agreement

    Deductible/SIR Indemnification

    DED/SIR

    DED/SIR

    Agreement

    Captives as part of an integrated and complex risk financing program

    17


    Structure Categories Captive Directory

    18


    Structure category
    Structure Category Captive Directory

    • Stock/Mutual

      • Stockholders/Members

      • Board of Directors

      • Officers

      • Taxable at Captive level

    • Reciprocal

      • Subscribers

      • Subscriber Advisory Committee

      • Attorney-in-Fact

      • Subscriber Savings Accounts - Assigned Surplus

      • Taxable at Captive and Subscriber levels


    Captive Trends Captive Directory

    20


    Trend 1 continued strong interest in captives
    Trend 1: Continued Strong Interest in Captives Captive Directory

    • New captive formations

    • Expansion of existing captives

    • Effects of hard market

      • Fronting insurance capacity diminishing and fees increasing

      • Higher reinsurance rates


    Trend 2 unrelated business
    Trend 2: Unrelated Business Captive Directory

    • Captives are increasingly insuring risks unrelated to the owners for:

      • Risk diversification

      • Tax deductibility

      • Profit potential

    • Examples

      • Suppliers or independent contractor P/C risks

      • Customers (warranty, credit life)

      • Employee benefits


    Trend 3 employee benefits
    Trend 3: Employee Benefits Captive Directory

    • Opportunity areas

      • U.S.: disability, life, deferred compensation, SERPs, retiree medical

      • Non-U.S.: reinsurance of multinational pooling, internationally mobile employees

    • Columbia Energy’s DOL ruling and ADM’s recent application for an exemption


    ad