Are you considering a captive set-up?
Companies establish captive insurance vehicles for at least one of the Six Cs of Captive Value — cost, compliance, control, cover, capacity, and commercial — that provide strategic value to the parent organisation.
The path to a captive insurance set-up starts with a feasibility study to access the business case, including the financial efficiencies, strategic, and operational benefits and limitations of alternative risk financing methodologies. A corporation’s decision on the amount of risk to assume is independent and a priority over determining how to finance the risk, whether retained on the books of the parent or within a pure captive insurance company.
There are several steps that go into evaluating a captive program. The feasibility process includes:
- Gather information.
- Review insurance data, loss data, and financial information.
- Conduct captive insurance modelling.
- Develop business plan.
- Determine optimal ownership structure.
- Analyse tax issues.*
- Analyse investment policy of the captive.
- Review corporate governance.
- Conduct captive domicile analysis.
- Present final recommendation to the prospective captive owner.
- Provide feedback and an ongoing relationship as the captive implementation and formation progresses.
- Ensure the selected service provider performs captive management services and day-to-day activities.
To perform the study, information requested will typically include:
- Parent company financial information.
- Company organisational chart of legal subsidiaries.
- Insurance summary (noting retentions and premiums by line of coverage).
- Five years loss experience.
Determining the optimal path for your captive can be a challenge. Captive modelling can support the comparison of total cost of risk for multiple program options. If it is determined that a captive vehicle would benefit your organization, the captive manager will help you to determine the setup that meets your unique needs.
The Isle of Man's captive insurance industry succeeds because it is an ecosystem comprising leading insurance companies and first-class financial and professional services. Contact us to find out more.
Article source: www.marsh.com
* All such matters should be reviewed with your own qualified tax, accounting, and legal advisors.