Benefits are designed to be competitive recruitment tools that effectively reduce absenteeism, disability and chronic illness.
You’ve had your P&C captive for years and it has continued to perform well throughout. So what is next? How do you capitalize on this success and build on your captive or rebuild an underperforming aspect of it?
Much like your family car, a captive should have a check up on a periodic basis. Are you writing the right lines in your captive? Are you in the right domicile? Would a different structure be more profitable? Would other service providers make a difference? Have your claims changed significantly? Have regulations changed over the years? All this and more can be answered with a good review of your captive by a professional consultant.
Here are a few things to consider as you ponder a refeasability study:
The Dodd Frank Act changed the landscape for a lot of captives. Rather than incur a self-procurement tax for risk out of state, some captive owners are redomesticating their captive back to their corporate home states or establishing a fronting captive in that domicile to lessen the premium taxes due. An additional dimension in captive domicile selection is the enormous growth in U.S. domiciles. Countless states have recently set up new domiciles and there are still many quality offshore options. You’re pretty sure you are in the right spot, but a “refeasibilty” might show you otherwise. For example, some states have created innovative cell legislation that might work for you or your clients. Some assets held in the captive maybe more liberal, so depending on what you are using for collateral, states need to be studied for the best match.
Ten years ago there were pretty much only large P&C captives writing pretty much only property, general liability and workers compensation and occasionally a rouge auto or warranty program. Captives stuck to high deductible programs and some small quota share coverages to fill out a line slip.
Today, you can write almost anything that is an insurable risk and makes good business sense. You still can’t write lines of coverage that just don’t make sense (like tidal wave coverage in Kansas), but you have a great deal more flexibility and room to be creative in how you define and insure your risk.
Contingent business interruption is sometimes an uninsurable or underinsured risk, and a good candidate for the captive. Some use their captive to front their global or international property program, selling off pieces out the back and taking a nice fronting commission for themselves: the market would have gotten this if they didn’t. Others write business specific coverage like lost in hole drill coverage for oil companies.
Cyber risk is another good candidate for a captive. Cyber insurance in a captive insulates an organization from the market becoming less competitive in the future. It also gives a captive owner a great opportunity to diversify their existing captive portfolio. The captive can also be used to provide coverage that might not be really available in the market, such as future lost revenue of first-party loss of inventory due to technology failure.
Now we have benefit programs that are really taking off as captive programs. Prefunding retiree medical, group term life, medical stop-loss coverage, foreign coverage are just a few of the programs that make sense to add to the captive portfolio. And with some of these programs, the premiums qualify as third-party business and may boost your captive returns with a positive tax affect.
Additionally, for U.S. employers, the regulatory hurdles to funding ERISA-covered benefits in a captive have never been lower with the renewal of the expedited process for securing a prohibited transaction exemption. Couple that with the growing costs (and concerns) surrounding the Affordable Care Act in the U.S. and now is clearly the time to at least be considering funding benefits in your captive.
Regardless of how old or new your captive is, there are a number of internal and external factors that have changed since it was created. Now is a great time to have a professional come in and not only take a snapshot of how your captive is currently performing, but also help you project and strategize where your captive should be in the future. Now is a great time for a captive refeasability study.
If you agree that it is time to re-evaluate your captive, Spring is poised to step in and help out. Our team of captive consultants, actuaries, underwriters, strategists, accountants and lawyers have decades of experience helping companies similar to yours not only set up their captives, but also conduct through and thoughtful refeasability studies, which have helped our clients realize continued success with their captive.
Please contact us using the form below if you’d like to chat with a member of our team about your captive’s current and future performance.