Do you have questions about member-owned group captives? Captive Resources (CRI) has the answers.
Why should my company join a group captive?
The insurance marketplace commonly goes through its “hard” and “soft” cycles where premium fluctuations have little relation to individual loss experience. These swings can be avoided by joining with other like-minded, successful companies to create your own group captive insurance company, making your costs more predictable and stable. In this way, you can lower your costs and earn investment income — both benefits you won’t receive from a traditional insurance company.
Click here to learn more about member-owned group captive advantages.
What is unique about CRI’s approach to insurance versus the conventional market?
Our member-owned group captive model offers companies premiums based on their actual loss records, extensive risk control and safety services tailored to their individual needs, opportunities for greater involvement in claims management, and unique coverage forms not available in the conventional insurance marketplace.
Click here for more details on our unique group captive insurance model.
Why is it necessary for the captive to have a policy issuing or “fronting” carrier?
“Fronting” refers to the use of a licensed, admitted insurer to issue an insurance policy on behalf of the captive. The captive can then retain a specified level of loss via a reinsurance agreement. The fronting, or “policy issuing” company assumes a credit risk since it would be required to honor the obligations imposed by the policy should the captive fail to indemnify it.
Generally, captives use a fronting company to satisfy financial responsibility laws imposed by many states. Certain types of statutory coverages, such as automobile liability and workers’ compensation, require evidence of insurance from an admitted insurer. So, the captive, which is a non-admitted insurer, contracts with a carrier that is licensed and admitted to write coverage in the United States to issue the policies on its behalf.
Who is on the captive’s Board of Directors?
Each member-company in the group captives we work with appoints a representative that sits on its Board of Directors. Members’ agents/brokers, CRI, or any other third-party service providers are not on the Board, nor do they have any ownership in the captive or voting rights. Captives have committees responsible for loss control, finance, and underwriting which make recommendations to the Board. Only the Board of Directors has decision-making authority.
Am I putting my company at financial risk by joining a group captive?
No, you are not. If you were simply paying a premium into a fund in a bank and hoping your losses don’t exceed the fund, then yes, it would be precarious. CRI client captives are structured properly, using a licensed and admitted insurance company rated A or higher by A.M. Best to act as the policy-issuing company. An equally strong reinsurance company insures the catastrophic losses, so the risk is level and manageable. In this manner, the captive is only assuming risk in the smaller, more predictable loss layer.
Why does my company have to post collateral? What forms of collateral are accepted?
Each member is required to post collateral that accomplishes multiple objectives: it helps to fund/capitalize the captive, collateralizes the policy issuing/fronting carrier, and secures member-to-member obligations (e.g., bad debt). Members may post letters of credit or cash collateral. Cash collateral earns investment income.
Is there potential for additional assessments?
Your company’s loss exposure and your loss fund will be established by the captive’s independent actuary. Typically, any assessment will be driven by your own company’s loss experience. There is a defined basis for any assessment, also when and how they occur. Assessments are limited, and you will always know your expected maximum amount upfront.
Why do the group captives close underwriting years?
Closing underwriting years provides stability for captive members by providing a predictable time frame for profits to be returned, or obligations to be settled in a consistent manner. The closing of underwriting years also illustrates an efficient exit strategy from the captive, if desired.
When will the group captive pay out dividends?
When declared by the group captive’s Board of Directors, members that have profits in their respective loss funds will have these profits returned to them, along with the investment income earned for that policy period, less any risk sharing. Generally, returns begin three years after the end of a policy period; this is the Board’s decision.
Will profitability result in a decrease in premium rather than dividends?
The captive’s independent actuary develops funding for losses. Over a period of time, generally three to five years, captive pay-in premiums should decrease if losses are less than the amount members pay into loss funds. Conversely, if losses exceed funding, premiums will need to be increased. If the captive Board declares a dividend, members may choose to use this cash toward their premium costs.
How long must I remain in the group captive to participate in profitability?
You will be committed to the captive for only one policy period. There are no ‘handcuff’ clauses in any of the group captives that work with CRI. We ask that when you join, you make a moral commitment for three years to give you an opportunity to learn and understand all of the captive operations. Generally, dividend returns begin three years after the end of a policy period; this is the Board’s decision.
Group Captives 101: Captive Insurance Explained
What is a captive insurance company?
According to the Insurance Information Institute (Triple-I) — A Comprehensive Evaluation of the Member-Owned Group Captive Option — a captive insurance company is:
An insurance subsidiary formed to provide risk mitigation services to its parent company. Basically, a parent company retains the cost of insurance coverage through the captive instead of paying premiums to a third-party insurer for commercial insurance.
For more information, read our Group Captive 101 article: What is a Captive Insurance Company?
What is a member-owned group captive?
A member-owned group captive is an insurance company formed by multiple organizations to insure risks of the member companies’ businesses. There are two key distinctions with the member-owned model used by the group captives we work with:
- The group captives are wholly owned and controlled by the member companies.
- The group captives only insure the member companies that own the captive.
For more information, check out our second Group Captives 101 article: What is a Group Captive?
How does a group captive insurance program work?
The group captive insurance programs we support are owned and operated by the companies they insure, which means they operate differently from conventional insurance plans in several ways. To learn how group captives are structured and fund losses, please read our Group Captives 101 article: How Does a Captive Insurance Program Work?
Why form a captive insurance company?
If your company is looking for a way to insulate itself from the harsh conditions of the commercial insurance market, forming or joining a captive can help companies take control over their insurance programs and its costs. To learn more, please read our Group Captives 101 article: Why Form a Captive Insurance Company?