primer on the structure and ownership of captives l.
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Primer on the Structure and Ownership of Captives. Captive Defined. A closely held insurance company controlled by its owners … ... offering insurance products or reinsurance support to its owners as the principal beneficiaries ...

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Presentation Transcript
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.

types of captives
Types of Captives
  • 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 Insurance Company

3

categories of captives
Categories of Captives
  • Ownership & Control
    • Single Parent
    • Cell Captive
    • Group/Risk Retention Group
  • Transaction & Regulation
    • Direct
    • Fronted/Reinsurance
  • Structure
    • Stock/Mutual
    • Reciprocal
  • Domicile
    • Offshore
    • Onshore
single parent
Single Parent
  • 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
  • May be highly leveraged and rely on Parent Financial Position
group
Group
  • 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
cell captive
Cell Captive
  • Reinsures the risk of cell owner
  • Includes predictable exposures
  • No unusual or uninsurable coverages
  • Assets Controlled by Sponsor/Owner
  • Ownership/Governance Limited
  • No Direct Capital – Indirect Capital for “gap” exposure
  • Legal segregation of assets and liabilities
  • Entrepreneurial in nature
captives are established to either insure or reinsure risk

… direct insurance

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

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

11

authorization varies by type of captive
Authorization Varies by Type of Captive

*Some Non-RRG groups offer direct insurance coverage as a non-admitted foreign carrier.

structure category
Structure Category
  • Stock/Mutual
    • Stockholders/Members
    • Board of Directors
    • Officers
    • Taxable at Captive level
structure category15
Structure Category
  • Reciprocal
    • Subscribers
    • Subscriber Advisory Committee
    • Attorney-in-Fact
    • Subscriber Savings Accounts - Assigned Surplus
    • Taxable at Captive and Subscriber levels
off shore implications
Off-Shore Implications
  • Non-Taxable in U.S.
  • U.S. Owners may be subject to tax exposure
  • Exposure to FET and Supplies Lines Tax
  • Non-Insurable Coverage
  • Money & Meeting outside the U.S.
  • Non-Admitted/Foreign Status
  • Subject to Infrastructures of Domicile
on shore implications
On-Shore Implications
  • Captive Exposed to U.S. FIT
  • Exposed to State/Domicile Premium Tax
  • Money in U.S.; Meetings in Domicile
  • Subject to Infrastructure of U.S.
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