Stay up-to-date on the latest news and insights in the group captive industry by subscribing to Captive Resources. Subscribe to Captive Resources. By Sean Flavin August 18th, Captive Retention Layer In the captive retention layer, losses are the responsibility of the captive. Reinsurance Layer Above the captive retention layer is the reinsurance layer, where risk is transferred to a conventional insurance carrier across the various lines of coverage e.
Umbrella and Statutory Limit Layer The next layer is comprised of two elements: Umbrella Coverage: Placed outside the captive for additional flexibility allowing individual members to secure different limits , umbrella coverage sits above the reinsurance layer for general liability and automobile coverage. Statutory Limits: Placed above workers' compensation coverage to meet individual state requirements. Aggregate Loss Coverage The layers above protect the captive against large losses, but what happens when a captive's members experience a large number of small claims?
Broker: A trusted advisor that supports the insured on a regular basis. Captive Consultant: An independent consultant that provides support, coordination, and oversight to the captive. Captive Manager: A full-service management firm providing captive insurance services like license application, captive formation, accounting, and more. Insurance Carrier: A carrier is still involved in the captive model to issue the policies, provide aggregate excess and statutory coverage, and back the full financial risk of the program.
Captive Insurance Company: Typically assumes the first layer of losses and represents the portion of the insurance arrangement that provides the member with the ownership, control, underwriting profits, and investment income. Risk Control Provider: An independent company that works closely with the members and captive consultant to help members reduce losses.
Claims Administrator: A third-party administrator TPA dedicated to handling claims for captive members. Independent Actuary: Calculates the amount members pay into their loss funds and performs other necessary actuarial functions. After, Inc. We look forward to hearing from you. Karen Clymer explains the top three modelling techniques we use most often and how to optimize on your extended warranty marketing campaigns.
In Part 4 of our four-part series on risk management, Paul Swenson talks about the risk management collaboration between After, Inc. A Primer on Captive Insurance What is a captive insurance company? Captive Structures There are five types of captive structures — single parent, multiple parent, heterogeneous, rent-a-captive, and segregated cell. Revenue recognition of extended warranty service contract margin Without a captive, companies are forced to earn the entire amount based on a curve or pro-rata.
But with a captive, they cede the premium and can take the margin into income. Investment income to fund losses With premiums paid upfront and losses funded over time, investment income can accumulate in a tax-free domicile, providing additional funds to pay for losses and a corresponding reduction for further captive funding.
Ability to access reinsurance markets directly Because reinsurers deal primarily with insurance companies, a captive allows the parent to go directly to the reinsurer and avoid unnecessary markups. Ability to customize insurance programs and greater control over claims A captive can finance any risk it chooses, customize the terms of its policies, and specify claims handling and procedures.
Tax advantages Captives offer a number of tax advantages, such as: accumulation of underwriting and investment income in a tax friendly domicile, ability to deduct paid premiums for the insured, and a variety of other tax incentives, depending on the domicile. It establishes uniform, national standards so all companies and regulators will use the same approach, thereby providing a far more level playing field than exists today.
AG 48 is also applicable prospectively, for the most part. The revisions add certain captive insurers and SPVs into the accreditation program. The revisions were put into effect on January 1, Life insurers have used captives to help reduce this unnecessary non-economic volatility. Since January 1, , compliance with PBR is mandatory, unless given an exemption on a case-by-case basis. The Plenary adoption was completed on August 14, The revision in was minor edit to align AG 48 with changes to model The AG 48 sunset provision indicates that as Model , or a substantially similar regulation goes into effect in a state, AG 48 is no longer effective.
The complex and evolving nature of captive insurance can make it difficult to prescribe one-size-fits-all review standards. Jane Koenigsman Sr. Search NAIC. Captive Insurance Companies. Classification of Captives: Pure Captive : Any company that insures risks of its parent and affiliated companies or controlled unaffiliated business. Such insurance and reinsurance shall be limited to the risks, hazards and liabilities of its group members and employee benefits coverages.
Association Captives : Any company that insures risks of the member organizations of the association, and their affiliated companies Industrial Captives : Any company that insures risks of the industrial insured that comprise the industrial insured group, and their affiliated companies. Branch Captives : Any alien captive licensed by the commissioner to transact the business of insurance through a business with its principal place of business in the District Rental Captives : A captive insurer formed to enter into contractual agreements with policyholders or associations to offer some or all of the benefits of a program of captive insurance and that only insures risks of the policyholders or associations Protected Cell Captives : Also known as segregated cell captives.
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