Frequently Asked Questions (FAQs)

“What lines of traditional insurance does it typically make sense to transfer into a captive?”

A:  The suitability of writing various lines of coverage through the captive depends on a number of factors, but in general:

Premium Volume

To qualify for a captive, the premium should be $1,000,000+ for the line of coverage being evaluated.  For a multiple line captive, total premium should be $2,000,000+.

Traditional Coverage by Industry

Workers Compensation:

  • Large staffing companies
  • Manufacturing companies
  • Any company that has several hundred employees and a large payroll.

Property Insurance:

  • Commercial Property Owners

General Liability:

  • Residential builders or developers.
  • Large Commercial Developers
  • Large Trucking Companies

Group Medical:

  • Companies with 100+ employees that provides group medical benefits. 

Professional Liability:

  • Law firms
  • Architectural firms
  • Mutual and Hedge funds 
  • Large professional services firms

Directors and Officers coverage:

  • Hedge funds

Intellectual Property:

  • Any firm with one or more highly valued patents, copyrights or trademarks.

“My lenders require my insurance to come from a rated carrier, how can I issue coverage from my captive and still secure my financing?”

A: For a fee, a rated carrier will provide what is known as a “front”. The fronting carrier provides their name for the policy to satisfy the lender’s requirements. The premium and the risk are “ceded” to the captive through a reinsurance agreement.

See Glossary Definition:        Fronting Carrier

“If I have a catastrophic claim, can I lose all of the money in the captive?”

A: You decide how much risk you want to retain. Through reinsurance agreements and excess policies, Risk Management Advisors can tailor your insurance company’s exposure to meet your comfort level and objectives.

“Who is else is using captives?”

A: Today there are over 5000 captives worldwide. Over 40% of major US corporations and many of your smartest competitors have one or more captives. Verizon, UPS, Centex Homes as well as many others utilize these unique companies.

The strongest periods of growth for captives occur as builders respond to hard market insurance environments.

“Sounds like a lot of work. How much of my company’s resources will I need to allocate?”

A: Risk Management Advisors will provide a turn key program to design, implement and manage your insurance company. This will allow you focus on running your company, while we help you fulfill your objectives for entering the alternative risk transfer market.

“Do I need a Feasibility Study?”

A: A feasibility study is important because it answers the essential question; “What will my return on investment be by using a captive?”   Prospective shareholders of the captive should have a clear understanding of what to expect when their capital is used to establish an insurance company. 

Once the strategic purpose for a captive has been established the feasibility study is conducted to determine the pay back period and rate of return on capital deployed and to answer the key organizational and operational questions that will have an impact. 

“What is contained in Feasibility Study?”

A:  The focus of the study will depend on the motivating factors for establishing the captive.  In general the feasibility study is a financial and risk management analysis that will always contain the following:

  • Assessment of potential risk to be insured
  • Actuarial report including premium rates, rating methodology and loss pick
  • Analysis of loss reserve requirements
  • Fronting carrier options/availability
  • Reinsurance options/availability
  • Consulting regarding capitalization requirements
  • Analysis of options for entity structure, formation and operation
  • Expense projections for various operational structures
  • Evaluation of appropriate domicile, both foreign and domestic
  • Overview of relevant tax considerations
  • Five year prospective financial statements
  • Dividend and/or profit allocation system

The study later becomes, in essence, the business plan for the captive with actuarial support for the loss assumptions, a description of how reinsurance will function behind the captive and how much capital will be required to make the captive financially viable.