The Elements of a Captive Feasibility Study

...CONT'D

Will the feasibility study tell me where to form my captive insurance company? 

 Any good captive feasibility study will always give you an opinion on the best domicile (location) for your captive insurance company given the structure and outline of your current property and casualty insurance program.

 This is more than just where your boss wants to spend his vacation…domicile considerations are all about:

• how your captive will be organized

• what lines of coverage will your captive be able to underwrite

• how much regulatory scrutiny you can expect from the domicile regulator

• local and federal tax issues

• permissible forms of corporate structure

• whether your program will need fronting by a commercial insurer

Domicile considerations are complex and, contrary to popular belief, should be based on more that input by your actuary or insurance broker, who may be itching to spend more time in his Cayman condo.

A good feasibility study will send you to the right domicile for your particular needs...and for the right reason.

Onshore or Offshore...

That Is the Question

Golf, Anyone?

Fracture, Anyone?

Whose Help Do I Need to Complete a Captive Feasibility Study?

First, a good actuary is important.  You will (if you get beyond the critical first test regarding premium volume) need to provide your actuary with 8 to 10 years of credible claims data in the lines that look like candidates for captive treatment.

You’ll need to provide exposure information as well – and a very good projection of your business’s financial projections in the coming year.

Please Don't Tell Me I Need An Actuary!

You’ll also need an experienced consultant.  (You can move on now if you think this is going to be a sales pitch.)

A good risk financing and risk management consultant can inject a sense of reality into this process.  Captive consultants devote their professional careers to the testing of captive feasibility, implementing captives, providing on-going management advice concerning operational issues, and have their fingers on the pulse of what is going on in the marketplace. 

A good captive consultant will bring the following wisdom to the feasibility process:

·         A sense of which domicile will accept your business plan and overall risk financing program.

·         An understanding of how the claims management process will be handled for the lines of coverage selected.

·         An awareness of the legal, tax, administrative, and structural implications of the captive formation.

·         How the value of the captive program can be explained (quantified) to your finance committee, CFO, board of directors, et. al.

Trust Us...You Need A Good Consultant

How Long Does It Take?

Always allow 90 to 120 days for true captive feasibility testing…that is, for the creation of pro-forma financials (five years of projected results will be important) and for the written business analysis to be completed. 

Always remember, however, that it doesn’t take more than 90 to 120 minutes to determine if you are a candidate for a feasibility analysis…don’t let anyone tell you any different. 

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So How Long Does It Take?