CAPTIVE INSURANCE Improve Your Operating & Financial Performance EXPLORE
CAPTIVE INSURANCE2021-06-17T12:10:23-05:00

What is a Group Captive?

At M. E. Wilson Company we define group captives as independently owned and operated insurance companies that provide insurance to, and are controlled by, their owners. A captive insurance company analyzes and insures the specific risks of its owners, typically reducing operating costs, and returns underwriting profits and investment income to them in the form of dividends. Captives are often incorporated and conduct business under the jurisdiction of an offshore domicile. • Homogeneous captives are those whose members who represent the same industry (e.g. building contractors, trucking companies, electrical products distributors, temporary employments, etc. • Heterogeneous captives refer to those groups whose members are from diverse industries. Both types share the common objective of seeking better control of their insurance objectives.

Why Should You Consider a Captive?

Lower Costs
• The price of insurance coverage purchased in the conventional market can oftentimes include mark-ups to pay for the insurer’s acquisition costs, marketing expenses, administration and overhead. Such pricing is specifically designed to deliver profit to the insurer’s bottom line. In a captive, the goal is to minimize those costs and enhance your bottom line.

Better Services and Better Management
• Loss control, safety and claims management are an integral part of group captive success. Service providers work for captive members to reduce the frequency and severity of losses. When a loss occurs, claim management focuses on managing the claim to the best possible outcome. Lowering loss costs increases the potential return to the member.

Insurance Coverage
• Members of a group captive have the buying power to negotiate consistently broad insurance coverage terms and the ability to insure operations in all 50 states, regardless of market cycles. “A” rated insurance carriers are used for reinsurance and policy issuance.

Enhanced Profit Potential
• As a member of a group captive, you are rewarded for risk control by receiving dividends that are directly related to loss performance, while investment income accumulates to your benefit. That’s more money in your pocket to invest in whatever way your business needs it most.

Long-term Control of your Insurance Destiny
• Group captives afford their members the ability to customize insurance programs that are tailored to their specific needs. Also, as a captive grows so does its risk tolerance and ability to negotiate favorably with reinsurers.

Who Should You Consider a Captive?

A member-owned group captive is an ideal form of alternative insurance for companies or organizations that share such qualities as:
• Long-term financial strength and stability;
• Management teams committed to safety, with solid safety programs in place;
• Loss histories that are average or better than average for their respective industries; and
• Minimum casualty (Workers’ Compensation, General Liability and Automobile Liability) premiums of $250,000 and up. Private and publicly held companies can benefit from a captive structure.

Are Captives Here to Stay?

A.M. Best has reported that the alternative marketplace, including captives, is larger by premium volume than the traditional marketplace. Companies that can control losses are moving out of the traditional insurance marketplace and finding alternatives that will return profits. Those companies that remain in the traditional insurance marketplace are subsidizing the losses of poorly performing companies.

How Can You Get Started?

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. M.E. Wilson Company will meet with you to describethe captive program in more detail, outline the underwriting and member selection process, and determine if the group captive is right for your company.

What coverages are underwritten in the program?2021-06-14T11:45:11-05:00

The captive reinsures Chartis Insurance for Automobile Liability and Physical Damage, Workers’ Compensation and General Liability, including Products and Completed Operations. Property coverage is available through a separate captive called Everest Property Insurance Company (EPIC).

Why join a captive insurance company?2021-06-14T11:45:35-05:00

The insurance marketplace has historically endured “hard” and “soft” market cycles where premiums go up and down with little relation to your actual loss experience. By pooling your resources and becoming an owner of an insurance company, these swings can be eliminated, making insurance costs not only more predictable but actually profitable. This is achieved through unbundled services resulting in lower fixed costs and the ability to retain investment income

Am I putting my company at financial risk by entering a captive?2021-06-14T11:45:58-05:00

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.

Besides the premium, what will be the contribution to capital and surplus?2021-06-14T11:46:27-05:00

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.

If you withdraw, how and when will capital and surplus contributions be returned?2021-06-14T11:46:59-05:00

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

Assuming the captive is profitable, will there be dividends? When? Will there be some relationship between loss experience and dividends?2021-06-14T11:47:22-05:00

Those members who have profits in their “A” and “B” funds, will have these profits returned to them, along with the investment income earned for that policy period. The captive endeavors to close the current policy period three years after the end of a policy year. Members that have losses exceeding their “A” and “B” funds, will not have any profits, and therefore, will not receive dividends for that underwriting year.

Will profitability (if any) result in a decrease in premium rather than an issuance of dividends?2021-06-14T11:47:44-05:00

Funding for losses is set by the captive’s independent actuary, Pinnacle Actuarial Services. Over a period of time (three to five years), the captive pay-in premium should decrease if losses are less than the amount being funded for. Conversely, if losses exceed funding, the premium will need to be increased. If a dividend is declared by the Board of Directors, it may be used to offset premium in the year it is declared, or returned to the shareholder. It is the Board’s decision.

MEMBER BENEFITS

• As an owner of a captive, you have control over your insurance destiny.

• Policies are issued and reinsured by nationally recognized A+ rated insurers.

• Unused premium dollars are returned to members in the form of a dividend.

• Initial premium pay-in amounts are often less than conventional insurance programs.

• Premiums are based on your company’s loss experience.

• Captive participants earn investment income on the dollars in their loss fund.

• An independent risk control assessment is performed by Risk Consultants, Inc. To qualify for captive membership, the company must score an 80 or better.

• Enhanced risk control programs help reduce your losses, improving your dividend and ultimately reducing your upfront premiums.

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