. What is a Captive. Captives are truly ?Special Purpose Insurance Companies." They are created primarily to serve a single corporation (or corporate family), members of an association, homogenous groups, an insurance agent's/broker's, TPA's or MGU's controlled book of business. The captive's owner(s) dictate its underwriting, risk management and investment policies..
1. ABCs of Captives & ART
2. What is a Captive Captives are truly Special Purpose Insurance Companies.
They are created primarily to serve a single corporation (or corporate family), members of an association, homogenous groups, an insurance agents/brokers, TPAs or MGUs controlled book of business.
The captives owner(s) dictate its underwriting, risk management and investment policies.
3. What is a Segregated Cell Captive Segregated cell captives may be owned by insurance companies, associations, insurance agents/brokers, holding companies, etc., etc., etc.
Segregated cell captives are protected.
The term protected cell applies to separate insured risks or lines of coverage that are segregated (protected) from other insured risk exposures and liabilities.
Protected cell design structures are flexible in make-up. As examples, they may be made up of single insureds, controlled books of business, homogenous groups or by line of coverage.
4. What is an RRG A risk retention group (RRG) is a liability insurance company that is owned by its insureds.
Under the Liability Risk Retention Act (LRRA), RRGs must be domiciled in a single state. (may NOT be domiciled offshore)
Once licensed by its state of domicile, an RRG can insure qualified risk(s) in all states.
Because LRRA is a federal law, it pre-empts state regulation, making it much easier for RRGs to operate nationally.
As insurance companies, RRGs retain risk.
5. What is an RRG Avoidance of multiple state filings and licensing requirements.
Insured controlled pre and post loss management program.
Establishment of stable market for coverage and rates.
Elimination of market residuals.
Exemption from countersignature laws for agents/brokers.
No expense for fronting fees.
Unbundling of services.
6. Why Form a Captive/RRG Provide alternative risk transfer/funding mechanism.
Smooth out insurance cost volatility.
Control coverage design, and risk retention.
Benefit from proactive risk management program.
Provide coverages not otherwise available.
7. Why Form a Captive/RRG Gain access to reinsurance market.
May enhance strategic partnership opportunities.
Capture underwriting profit and investment income.
Creative financial tool.
Long-term fluid investment.
8. What Coverages Medical Malpractice
Auto Liability & Physical Damage
Medical Stop Loss
Short & Long Term Disability
Employee Group Medical Benefits
Coverages not otherwise available
9. What Coverages
These coverages in most cases may be reinsured to a captive whether the front is a traditional insurance company or an RRG.
10. What is a Fronting Company A fronting company retains responsibility for the captives regulatory and statutory compliance, which includes the ultimate financial responsibility for all coverages reinsured to the captive.
11. ARTs Versatility For example, two models:
Single Parent Captive
State Medical Community
12. Single Parent Captive
13. Single Parent Captive Deductible buy back program for casualty lines:
Front underwrites and issues coverages policies on a fully insured basis
Front enters into a reinsurance agreement wherein the captive guarantees to reimburse the front for the programs negotiated deductible.
15. Medical Society & Hospital
16. Programs Coverages Medical Malpractice Tail Liability coverage
$1 million / $1 million
Medical Malpractice Liability coverage $1 million / $3 million
Miscellaneous Professional Liability coverage $1 million / $3 million
General Liability coverage (optional)
$1 million / $3 million
17. What is Involved Step 1
Gather underwriting information.
Incorporate received underwriting information into a financial model to determine proposed captives financial viability.
Agree whether proposed captive is a go or no go proposition.
18. What is Involved Step 2
An actuarial firm engaged to provide financial models that will include suggested retention limits and capitalization requirements.
Identify and begin dialogue with qualified underwriting partners.
Team members will develop captives business plan, which will include marketing and financial sections.
Orchestrate a meeting with selected domiciles regulators and Department of Labor if appropriate (employee benefits only).
19. What is Involved Step 3
Incorporate and capitalize captive and/or RRG.
Complete and file captives and/or RRGs license application with chosen domiciles insurance department for approval.
Contract with a captive management company for ongoing mind and management services.
20. What is Involved Step 4
Roll out program.
21. ART The World of Imagination
22. Richard (Dick) C. Goff
The Taft Companies
901 Dulaney Valley Rd, Suite 610
Towson, MD 21204
Phone: (800) 899-1399
E-mail: [email protected]
Web: www. Taftcos.com