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CJPIA Executive Committee Workshop. Exploring Alternative Legal Structures for Pooling: Captives April 25, 2014. Pools Exist Today in a Variety of Forms. JPAs with Risk Retention. Municipal Mutual Insurers Comp. Simple contractual agreement. Joint Powers Authorities. Captives.

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Cjpia executive committee workshop

CJPIA Executive Committee Workshop

Exploring Alternative Legal Structures for Pooling: Captives

April 25, 2014


Pools exist today in a variety of forms
Pools Exist Today in a Variety of Forms

JPAs with

Risk Retention

Municipal Mutual

Insurers Comp

Simple contractual

agreement

Joint Powers

Authorities

Captives

Special Legislation

Reciprocals

“Non-Profit Mutual

Insurance Companies”

“Group Self-Insurance”


Key values for successful risk pooling
Key Values for Successful Risk Pooling

  • Long Term Commitment

  • Risk Sharing

  • Homogeneity of Interest

  • Equitable Profit/Loss: “Rough Equity”

  • Commitment to Risk Management

  • Political Support





Equitable profit and loss distribution rough equity
Equitable Profit (and loss) Distribution: “Rough Equity”




Key values for successful risk pooling1
Key Values for Successful Risk Pooling

  • Long Term Commitment

  • Risk Sharing

  • Homogeneity of Interest

  • Equitable Profit/Loss: “Rough Equity”

  • Commitment to Risk Management

  • Political Support


Captive definition
Captive Definition

  • A licensed insurance company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing risk financing to the owner or owners.


Types of captives
Types of Captives

  • Single Parent (Pure) Captive

    • Wholly owned by one parent company

  • Group Captive

    • Owned by two or more companies, usually a trade association or homogenous group of companies


Why captives are formed
Why captives are formed

  • For all the same reasons as Pools, PLUS:

    • Tax Benefits (for-profit)

    • Regulatory Reasons

      • To gain authority to do things

        • To cross state lines (in fronted or RRG form)

        • Increase investment options

        • Increase coverage reach

      • To protect from others

        • Open meeting and records laws

        • Political pressures adversely influencing public entities

      • To gain certainty


Captive domiciles number of active captive insurance companies
Captive DomicilesNumber of Active Captive Insurance Companies


Example captive plus jpa reinsured program
Example: Captive plus JPAReinsured Program



Public entities using captive insurers
Public Entities Using Captive Insurers

  • NLC Mutual Insurance Company

    • Reinsures Risk Pools

  • United Educators Ins., A Reciprocal Risk Retention Group

    • Insures Colleges and Universities

  • States Self-Insurers Risk Retention Group

    • Insures municipalities

  • Pelican Insurance: A Reciprocal Risk Retention Group (owned by PA Counties Pool members)

    • Insures County Owned Nursing Homes


Public entities using captive insurers1
Public Entities Using Captive Insurers

  • Public Risk Mutual and Public Compensation Mutual

    • Used as excess insurer of Nevada pools

  • ASCIP

    • Single parent captive reinsures OCIP; underwriting profits accrue to captive

  • SET-SEG

    • Bermuda Captive provides regulatory requirement for aggregate stop loss

  • Transit Re

    • Group captive reinsures transit pools


Summary
Summary

  • Captives provide all the benefits available for pools

plus

  • Captives may provide additional benefits not available to pools

  • Captives may protect pools from certain operational risks

  • Captive regulators are generally knowledgeable and business friendly


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