Is A Captive Right For You?

Any organization whose cost of risk justifies the expense of establishing and operating a captive is a potential captive owner. Whether through dissatisfaction with the traditional insurance market or because of long term investment objectives, a captive is a relatively inexpensive vehicle through which to transfer risk and take advantage of cash-flow and financial planning opportunities.

Conducting a Captive Feasibility Study

In determining whether or not a captive insurance company is right for your organization's financial and/or strategic needs, a feasibility study should be prepared. Evaluating the historical loss trends, exposures, premiums and many other factors allows for a complete analysis comparing the costs and benefits of using this type of financing vehicle. The feasibility process generally involves the following steps:

  • Identify potential coverage's to be transferred to captive in the short term and identify longer term possibilities.
  • Define operational parameters of the captive (fronted versus direct, domicile, retention level, etc.).
  • Project losses actuarially within the captive-retained layer.
  • Develop pro forma financial statements, taking into account loss projections, operating costs and other factors, including sensitivity analysis to test downside scenarios.
  • Draft the feasibility report, including the findings, recommendations and underlying assumptions, to support management decision making and discussions with captive regulators.