Group captive insurance is most often used for standard casualty lines like: General liability, Product liability, Professional liability, Commercial Auto, & Workers’ Compensation. Of these lines of coverage, Workers’ Compensation coverage is the most common risk pooled in 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.

If it is done properly, you are not. If all you were doing is paying a premium into a fund in a bank and hoping your losses didn’t exceed the fund, then yes, it would be very risky. If, however, the program is structured properly, using a licensed admitted insurance company to act as the fronting company who actually issues your policy, and if a financially strong reinsurance company is used to insure the catastrophic losses, the risk is minimal. Under this concept, the assumption of risk occurs only in the smaller, predictable layer. By cutting fixed costs and earning investment income, financial risk is reduced, and the bottom line is enhanced.

Typically, each member contributes $36,000 as capitalization. $100 is for a common share of stock and $35,900 is redeemable preference shares. Your company will earn investment income on the $35,900 for the entire period of time they are in the captive. Each member also posts a letter of credit to collateralize any possible assessment in the program, as well as to provide additional capital in the company. The amount of the letter of credit is specified in your proposal.

Capital and surplus are returned when all policy years for which your company participated are closed.

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.

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.

M.E. Wilson Company partners with Captive Resources, LLC, one of the country’s largest captive consultants, to guide companies through the group captive analysis process.

Our staff will meet with you to describe the captive program in more detail, outline the underwriting and member selection process, and determine if the group captive is right for your company.