Understanding what a Captive is, and the concept of forming a Captive is increasingly becoming a part of the insurance management exercise.

Captives are insurance companies that are wholly owned by its members or insureds. In the past it was thought only Fortune 500 companies could take advantage of this risk financing vehicle. The formation of group and association Captives over the past two decades has changed this thought process. A group Captive can be formed from companies who share the same industry (homogeneous) or from companies that are varied in industry (heterogeneous) that share the same risk management philosophy.

Captives are formed for many reasons, some of which are:

• Gain control of underwriting profits and investment income that would normally go to the standard insurance carrier
• Avoiding the ups and downs of marketing your insurance program year after year
• Lack of insurance availability in the marketplace for hard to place exposures
• Direct access to the reinsurance markets
  

In addition to the formation of captives, ongoing support is crucial to the success of the captive. Required services include:

Insurance:

• Underwriting in accordance with the Board of Directors’ guidelines
• Administration of insurance and reinsurance programs
• Preparation of all necessary documentation including policies
• Claims handling and settlement

Accounting:

• Payment and receipt of premiums
• Claims and recoveries
• Administration of operating accounts

Incorporation:

• Maintenance of all records
• Management reports
• Financial statements and regulatory reporting
• Compliance with the laws of the captive domicile
• Secretarial support
• Coordination of board meetings and provision of facilities

FIRSTGATE has the ability to work with your company to develop a captive that is tailored to fit your company’s needs. Development of a captive program requires the selection of the optimal corporate structure, domicile (onshore versus offshore), cost allocation methodologies, and professional captive support services: actuarial firm, legal counsel, and accounting/auditing firm. In addition tax structures and regulatory issues need to be evaluated to determine the best fit for your company.