slide1 n.
Download
Skip this Video
Download Presentation
November, 2003

Loading in 2 Seconds...

play fullscreen
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


Download Now 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
slide1

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.

4 837 captives worldwide year end 2002 figures

WESTERN HEMISPHERE

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

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

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
  • 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
  • Ownership & Control
    • Single Parent
      • Group/Risk Retention Group
        • Rent-A-Captive/Protected Cell Captive
  • Transaction – Offshore & Onshore
      • Direct
        • Fronted
  • Structure
      • Stock/Mutual
        • Reciprocal
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
  • Highly Leveraged
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
rent a captive
Rent-a-Captive
  • 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 and 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

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

17

structure category
Structure Category
  • 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
trend 1 continued strong interest in captives
Trend 1: Continued Strong Interest in Captives
  • 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
  • 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
  • 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