Captive Solutions FAQ's
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What is a Captive?
A captive is an insurance company owned by its members or insureds. Benefits to be gained from adopting this financial management approach include increased overall control of your total risk management program and its various components. In addition, under a captive program, underwriting profits and investment income from premiums are returned to the participants or sponsors. Depending on the size of your company, group or association, we can assist you in identifying a captive approach targeted to meet your specific needs.
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What are the benefits of captive participation?
Benefits to be gained from adopting this financial management approach include increased overall control of your total risk management program and its various components. In addition, under a captive program, underwriting profits and investment income from premiums are returned to the participants or sponsors. Depending on the size of your company, group or association, we can assist you in identifying if the captive alternative is a fit for your specific needs.
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Does a Captive Work for Everyone?
No. A company must be strong financially, best of class and highly committed to safety and proactive risk management.
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Why join a Captive Insurance Company?
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 fluctuations 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.
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Am I putting my company in financial risk by entering a captive?
If it is done properly, you are not. If all you did each year was pay premium into a fund in a bank and hope your losses didn't exceed the fund, then yes it could 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 we use a financially strong reinsurance company 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.
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How long must the insured remain in the captive to participate in profitability?
You are committed to the captive for only one policy period. Profits are based upon the policy period you are a member of. We do ask that when you join, you make a moral commitment for three years, to give you an opportunity to learn and understand all of the workings of the captive.
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Who is on the captive Board?
Each member of the captive is also on the Board of Directors. Neither the broker nor the captive administrator is on the Board. The Board has four committees: risk control, finance, membership development and underwriting. The captive asks that each member serve on one of the committees to become more familiar with the workings of the captive. All service providers (accounting management, auditing services, investment management, legal, policy issuance, claims administration, loss control) serve at the discretion of the Board of Directors.
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Will the captive be set up as an entity that will pay U.S. Income taxes? If not, will there be dividends adequate to pay the insured's subpart F income tax liability?
No. The captive will typically be a non-U.S. corporation. As a result of the 1986 Tax Act, a company is construed to have received the dividend whether it is taken or not. Each shareholder is responsible for his or her own tax situation.
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How often will financial statements be prepared?
Semi-annual reports will be prepared and available for review by all members.
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What is the legal formation of the captive?
The captive is a corporation typically domiciled in the Cayman Islands.
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What coverages are underwritten in the program?
The captive reinsures 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).
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What is the historical experience of a group captive as it relates to the conventional market?
Historically, members create a 30-40% return on what is now a major expense.
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Why aren't you in a captive now?
Either your current agency/broker
1) doesn't know/understand captives.
2) doesn't want a reduced commission on your account.
3) your company doesn't qualify.
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How much do you get back now?
The traditional market is designed to create profit for Insurance Companies. In a captive, members can receive 30-40% of unused premium back with investment income.