Companies with strong safety records often find themselves frustrated by insurance premiums that fail to accurately reflect their performance. Traditional insurance pricing relies on industry averages and market conditions rather than a company’s actual loss experience, essentially meaning that well-managed businesses subsidize higher-risk operations.
Group captives offer a fundamentally different approach. They calculate casualty premiums using company-specific data, directly correlating loss performance and premiums.
“The primary factors influencing premium calculations for a group captive member are its five-year loss experience and historical exposures by line of coverage, along with projected exposures for the upcoming policy period,” said Phil Cameron, Head of Captive Management at Captive Resources.
Continue reading to learn how group captives use member-companies’ actual performance data to set customized premiums, giving companies like yours increased control over costs while rewarding those with strong safety records.
The casualty group captives we support are designed to reward companies that invest in comprehensive safety programs. Rather than being constrained by broader market rates, businesses with favorable loss histories benefit from reduced upfront premiums and the potential to earn back any underwriting profit when actual claim costs fall below actuarial projections.
Safer workplaces not only lower a company's cost of risk but also mean fewer employee injuries and fatalities. When group captive members implement effective safety programs that reduce incidents, many experience fewer claims and lower claims costs, which directly translates to lower premium calculations based on their five-year average losses.
This approach creates meaningful financial incentives for workplace safety improvements while providing transparency in allocating premium dollars.
The premium calculation methodology employs a unique risk-reward approach that uses an A/B Loss Fund model to pay out losses. The primary loss layer is called the A Fund, which covers frequency losses (i.e., typically, the first $100,000 to $150,000 of a loss).
Actuaries calculate a five-year average loss rate per unit of exposure, capping each individual loss at the A Fund layer and incorporating adjustments for inflation and benefit changes over time. This rate is then applied to projected exposures to determine the A Fund contribution.
“The methodology assumes that a company’s past claims experience in the A Fund layer is indicative of their future experience and essentially reverses some of the control over premium determination from insurance companies back to individual captive members,” said Cameron.
The B Fund handles losses exceeding the A Fund threshold up to the captive’s retention, which is typically the next $300,000 – $400,000. It’s also where risk sharing between members of the captive takes place.
Each member’s B Fund contribution is calculated as a percentage of its A Fund, with the percentage influenced by the group captive’s aggregate loss activity in the B Fund layer. The B Fund’s risk-sharing methodology ensures that members’ premiums reflect their individual risks and loss history while distributing severity losses collectively across the membership, but only after a member has exhausted its A Fund and B Fund for that policy period. This structure maintains individual accountability while incorporating collective risk considerations.
While premium calculations focus on individual company performance, group dynamics influence operational costs and retention strategies. Each captive chooses its retention level (roughly $400,000 – $500,000 depending on the captive), which represents the total amount of risk the captive assumes for any given claim before reinsurance coverage takes effect. The captive’s specific excess coverage, which addresses losses above the retention level, is priced based on the group’s historical loss experience and underlying risk characteristics.
Cameron notes that determining the most suitable captive retention requires the careful analysis of multiple factors: “The main factors that help determine the appropriate captive retention are the size and maturity of the captive, the targeted classes of business making up the membership, the claims experience of the captive, and the average premium size of the membership.”
The A/B Loss Fund formula has demonstrated accuracy and sustainability through more than four decades of application across diverse industries and economic cycles. This extended successful track record provides confidence in the model’s ability to balance fair pricing with financial stability.
“The model provides significant value for individual companies seeking both control and accuracy over the premium they pay on an annual basis, while also seeking greater predictability and stability over the total cost of risk,” said Cameron.
Understanding group captive premium development provides companies with valuable insight into risk management solutions. The model’s emphasis on performance rather than industry averages creates opportunities for well-managed businesses to achieve greater control over insurance costs while building long-term financial benefits through their dedicated focus on loss prevention and claims management.
For organizations seeking to align insurance costs with actual performance, the group captive model offers a compelling alternative to traditional insurance market constraints.
The information above pertains to the casualty group captives supported by Captive Resources. Provisions may vary by captive. Each captive’s program documents contain a complete statement of program terms that should be carefully reviewed.
