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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. JPAs with Risk Retention. Municipal Mutual Insurers Comp. Simple contractual agreement. Joint Powers Authorities. Captives.

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CJPIA Executive Committee Workshop

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  1. CJPIA Executive Committee Workshop Exploring Alternative Legal Structures for Pooling: Captives April 25, 2014

  2. 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”

  3. 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

  4. Long Term Commitment

  5. Risk Sharing

  6. Homogeneity of Interest

  7. Equitable Profit (and loss) Distribution: “Rough Equity”

  8. Commitment to Risk Management

  9. Political Support

  10. 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

  11. 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.

  12. 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

  13. 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

  14. Captive DomicilesNumber of Active Captive Insurance Companies

  15. Example: Captive plus JPAReinsured Program

  16. Example: Captive Replaces JPAFronted Program

  17. 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

  18. 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

  19. 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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