Why join a group captive insurance company?
The insurance marketplace commonly goes through “hard” and “soft” cycles where premium fluctuations have little relation to individual loss experience. By pooling your resources and creating your own captive reinsurance company, these swings can be avoided, making your costs more predictable. Also, by pooling your resources, you can lower costs and retain investment income, both advantages your current insurance company retains.
Am I putting my company at financial risk by joining a group captive?
The simple answer is, no, you are not. If you were simply paying a premium into a fund in a bank and hoping your losses don’t exceed the fund, then yes, it would be very risky. Captive Resources’ client captives are structured properly, using a licensed and admitted insurance company rated A- or higher by A.M. Best, to act as the policy-issuing company and an equally strong reinsurance company to insure the catastrophic losses, so the risk is level and manageable. The captive only assumes risk in the smaller, more predictable layers.
Assuming the captive is profitable, will there be dividends? If so, when? Will there be some relationship between loss experience and dividends?
When declared by the board of directors, members who have profits in their respective loss funds will have these profits returned to them along with any investment income earned for that policy period. Generally, returns begin three years after the end of a policy period; this is a decision of the board of the particular captive.
Will profitability (if any) result in a decrease in premiums rather than dividends?
Funding for losses is developed by the captive’s independent actuary. Over a period of time, generally three to five years, captive pay-in premiums should decrease if losses are less than the amount being funded. Conversely, if losses exceed funding, premiums will need to be increased. If the captive board of directors declares a dividend from a particular member’s loss fund, members may choose to use this cash toward the premium.
What problems will be addressed by Captive Resources that are not addressed through the normal insurance marketplace?
Captive Resources and Arbor Insurance Group develop specialized loss control programs tailored to members’ unique needs, special handling instructions for each member’s claim and unique coverage forms not available through the standard marketplace.
How are premiums developed?
Premiums are developed based on the last five years of your company’s historical information. A few major components include the last five years of loss history, the last five years of exposures, and the last five years of premium history. Unlike the conventional marketplace, your premiums are not developed based on carrier performance, industry performance, and losses; rather, premiums are developed primarily on your own company’s performance which, many times, may result in lower pay-in premiums than the conventional market.