Captive Insurance Overview What is a Captive? Property & - - PowerPoint PPT Presentation

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Captive Insurance Overview What is a Captive? Property & - - PowerPoint PPT Presentation

Jan 30, 2023 245 likes •418 views

Captive Insurance Overview What is a Captive? Property & Casualty Insurance Company Formed to cover the unique risks of an operating company Provides coverage for specialized risks which may not be available or may be too costly

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SLIDE 1

Captive Insurance Overview

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What is a Captive?

  • Property & Casualty Insurance Company
  • Formed to cover the unique risks of an operating company
  • Provides coverage for specialized risks which may not be available
  • r may be too costly to obtain through traditional insurance

providers

  • A bona fide insurance company, subject to approval and

regulatory oversight by the insurance regulators in a chosen domicile

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 2

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SLIDE 3

Insurable Risks That May Result in Loss of Business Income

  • Business Interruption
  • Contract Penalty and Failure

to Perform on Contract

  • Deductible Reimbursement
  • Defense Cost

Reimbursement

  • Difference in Conditions
  • Loss of Franchise
  • Loss of Key Employee
  • Loss of Licensure
  • Legislative and Regulatory

Changes

  • Reputational Risk
  • Suppliers/Supply Chain

Interruption

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 3

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SLIDE 4

History of Captives

1861 1920s 1957 Today

Tooley Street Fire Fred Reiss forms first captive in Cleveland, Ohio for the Youngstown Sheet and Tube Company PATH Act Effective January 1, 2017 Large corporations begin forming wholly owned insurance companies IRS Issues Safe Harbor Rulings

2002 2004

831(b) Captives no longer a listed transaction

2014

Over 50% of domestic domiciles offer specialized captive statutes

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 4

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Basic Captive Structure

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 5

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SLIDE 6

Middle Market Captive Opportunities

There are multiple cost-efficient platforms available that can help the small to mid-size client effectively manage their Enterprise Risk exposures.

  • 831 (b) Captive
  • Share Class Captive
  • Group Captive

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 6

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How to Build a Conservative Captive

  • Design with risk management as the primary focus
  • Adhere to IRS Revenue Rulings and all available guidance
  • Assure that the captive is operated as a bona fide property

& casualty insurance company

  • Underwrite policies that offer meaningful coverage at

appropriate premium levels

  • Avoid structures that are “too good to be true” in order to

generate predictable results

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 7

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SLIDE 8

How Does it Work?

Operating Company New Captive

  • f Oxford

Insurance Company Oxford Fronting Carrier

Insurance Policy Insurance Premium Premium Reinsurance Underwriting Profit *

Captive Owner

Flexible Ownership Options

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 8

*After Claims less Expenses

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SLIDE 9

Oxford Fronting Carrier

All Other Captives Share Risk

  • n a Quota

Share Basis Captive which filed the Claim

$1,000,000 Claim from Oxford Insured

$1,000,000 Claim

Assumptions:

  • Your Captive Premium is $750,000
  • Total Written Premium = $100MM
  • Your Quota Share of Claim Pool = 0.0075

Your Captive

$6,000

Exposure to Claims

  • Your Captive is Responsible for $6,000

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 9

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Oxford Structures

Oxford Insurance

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 10

Oxford Fronting Carrier Oxford Series

Share Class B Share Class D Share Class C Share Class A

Oxford Stand Alone

Operating Company

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IRS Scrutiny of Abusive Structures

  • Not Following the Safe Harbor

Guidelines

  • No Real Distribution of Risk
  • No Claims Experience or Claims

Layering

  • High Deductible Risk Pools or

Retroactive Policy Issuance

  • Lack of Business Purpose
  • Implementing a Captive to Obtain

Tax Deductible Life Insurance

  • Tax Opinion Written by an

Interested Party

  • Insuring Unreasonable Risks
  • Paying Excessive Premium for your

Coverage

  • Treating Captive Assets as a

Personal Checkbook

  • Circular Transactions
  • Investment Plans that Don’t Make

Sense

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 11

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Captive Implementation Process

Initial Consultation Informal Feasibility Analysis Domicile Selection Engagement Process Risk Analysis, Underwriting and Compliance Complete Feasibility Study Application to Insurance Regulators Approval Process Closing Procedure

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 12

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Captive Advisory Group

Captive Manager Legal Counsel P&C Agent and Risk Analysis Firm Financial Advisor Tax Counsel Audit Firm Actuarial Firm

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 13

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SLIDE 14

Third Party Review and Analysis

  • Independent Third Party Risk Analysis
  • Coverage Chart
  • Gap Identification
  • Total Cost of Risk (TCOR) Analysis
  • Enterprise Risk Exposure Review
  • Risk Selection
  • Identify Relevant Coverage
  • Avoid Duplicate Coverage
  • Independent Third Party Actuarial Analysis
  • Rate Promulgation
  • Peer Review of Pricing Methodology
  • Feasibility Study

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 14

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Underwriting

  • Assemble Current Insurance Information
  • Review Current Policies and Endorsements
  • Analyze Five Year Loss Runs
  • Three Year Summary of Coverage
  • Identify Trends in Premium History
  • Underwriting
  • Understanding the operating company
  • Discuss reasonable coverage applicable to industry and unique

business

  • Identify Self-Insured Exposures
  • Identify Uninsured Loss Experience
  • Adequacy of Policy Limits

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 15

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Client Profile

  • Annual Revenue $3MM+
  • Enterprise Risk Exposure
  • Willing to invest time to

explore risk management solutions

  • Sophisticated business
  • wner
  • Across All Industries:

– Agriculture – Automobile – Construction – Entertainment/Professional Athlete – Medical – Real Estate – IT – Oil Drilling – Manufacturing

954 Ridgebrook Road │ Suite 100 │ Sparks, Maryland 21152 │ 410.472.6490 T. │ 410.472.6496 F. │ www.OxfordRMG.com 16