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REACHING YOUR GOALS
WITH A CAPTIVE
Today‘s Speakers
Panelist and ModeratorMike Meehan, CIC, CRMConsultant – Milliman, Inc.
Panelists:Anne Marie Towle, CPASenior Consultant – Willis Global Captive Practice
Ira Richterman, MDChairman – Starkap
Agenda
• Evolution of a Group Captive• Actuarial Feasibility Study
– Necessary Data
• Case Study - – The Starkap Family (How the “Family” was created)
Anne Marie Towle, CPAWillis Global Captive Practice
Senior Consultant
Evolution of a Group Captive
Methods of Managing Risk
Conventional Insurance
Transfer All Losses
Risk Management
Retain Predictable Losses
Transfer Catastrophic Losses
Non-Insure
Retain All Losses
Evolution of a Group Captive
Develop Business Case
Conduct Feasibility Study
Grow Participation & Commitment
Select Business Partners
Challenges & Recommendations
Manage Concerns & Feedback
Developing the Business Case
Sample Group Captive Risk Layering Model
Many types of insurances could
be shared in a group captive
platform:WCG/LA/LP/L
Etc…
Legal & Financial Considerations
Joining the Family
Grow Participation and Commitment Build credibility and trust within group Influence: turn advocates into promoters and leaders Stress importance of loss control and long term view Reiterate benefits: premium cost reductions, greater control, escape
cycles Reinforce cohesive elements of group Bring in service providers to talk about areas of expertise Realize it’s a financial decision and an organizational change
process Follow up, but be patient and allow them to assess information
Selecting Business Partners
Service Providers During feasibility study begin to meet and conduct due diligence Fronting and Reinsurance Carriers Legal Counsel Audit and Tax Advisors Meet regulators and visit appropriate domiciles
Captive Consultant/Manager Actuary TPA Banking and Investment Advisors
What to Look For Willing to partner with a number of
companies with individualized needs Experience collaborating with all service
providers to create value Ability to simplify and explain complex
information Technology and service that fits your
needs
How to Work with Providers Issue RFPs and understand
key selection criteria Be instructive about service
requirements and deliverables
Managing Concerns & Feedback
Financial Impact to Their Organization Capitalization and Prefunding Collateral, Dividends, Investment Income
Working Together Sharing of sensitive information
among companies Different reporting requirements and
risk management practices
Sharing Risk Bankruptcy Potential Assessments & Protections within Structure Risk Appetite Loss Control & Compliance
Captive Operations & Governance Service Providers Being Replaced?
One TPA? Voting and Control of Captive
Decisions Entry: Underwriting Guidelines Exit: Prohibitions to Leaving the
Captive
Mike Meehan, CIC, CRMMilliiman, Inc.
Consultant
Actuarial Feasibility Analysis
• Why is a feasibility study necessary?• What data do you need to complete the analysis?• What should you expect to get out of the
analysis?• What are my ongoing actuarial needs?
Why is a Feasibility Study Necessary?
• Forms the basis for measuring the financial viability of the proposed captive
• Helps to identify potential advantages and the potential risks
• Likely required for licensing/application process• May be required for presenting to the reinsurance
market
What Data Do You Need to Complete the Analysis?
• Basic information– Company specific
• Goals, constraints
– Operational• Account background• Management (claims, risk management)
• Loss Information– Historical
• Claim runs, large loss listings (i.e. outliers)
• Exposures– Historical and prospective
• Payroll, vehicles, sales, etc.)• Descriptions/locations
What Data Do You Need to Complete the Analysis?
• Expense information– Vary by type of program, domicile
• Other Assumptions– Growth– Rate of return on investments– Payout patterns– Capitalization– Taxes– Adverse scenario
• Challenges– Single entity vs. group program
What Should You Expect to Get Out of the Analysis?
• Loss analysis– Review of past loss experience– Actuarial adjustments– Consideration of internal factors (i.e. loss control)– Consideration of external factors (i.e. laws/benefit levels)
• Loss forecast / loss rate– For first year of captive– Confidence levels (adverse scenario)
• Pro forma financial statements– Typically five year– Based on expected and adverse scenarios– Based on expense assumptions, domicile– Payout patterns– Surplus and capital contributions
What Should You Expect to Get Out of the Analysis?
• Evaluation of Results– Adequacy of capital– Adequacy of reserves (for LPT)– Adequacy of premium– Minimum number of participants
• Solvency Measurements– Premium to surplus– Reserves to surplus
• “Decision Time”
What Are Ongoing Actuarial Needs?
• Annual loss reserve opinion• Change in business plan
– New coverage analysis– Loss layers / reinsurance analysis
• Updated premium projections• Capital analysis• Cost allocation / dividend analysis
– Especially Important for group program
Ira Richterman, MDStarkapChairman
Why Do We Want to Date?
• Escalating malpractice premiums– $22k to $103k per year without incident
• Lack of control of expenses• Ignorance towards risk management• Non-active role in legal matters
– 180 day letters thru legal suit
Who Do We Want to Date?
• Known physicians– Personalities– Practice management – record keeping and
communication skills
• Geographic location of practice– Re-insurer would not underwrite Cuyahoga County– Single county company
• Control vs limited size (premium)
Courtship
• Beginning to develop consultation team– Risk manager– Captive manager
• Feasibility study– an evaluation of cost
• Hospital Acceptance– Requirement of A-rated company
Permission From Your Future Father-In-Law
• Physician education– Coverage limits and asset protection– Start-up expenses– Competitive brokers– This is not an investment vehicle
• Obtaining Reinsurance
The Wedding
• Who’s in & who’s out?• Can we still get married?• The wedding license
– A solid long-term business plan (conservative)– Listen to your consultants
A Child is Born
• Where is the instruction manual?• It speaks a different language• Sleepless nights
Childhood
• Continued education and understanding– Monthly meetings– IMAC attendance– Marathon board meetings
Bumps and Bruises
• One large rainstorm• Loss of captive manager company
– Follow our leader to a new company
• Changing consultants as the company grows– Local insurance consultant to worldwide company– Single risk manager to larger national firm
• Individual vs. The Company
– Investment troubles – the tale of the audited financial statement
– Our auditor is just too big - $$$
Adolescence
• Defending our first suit – its not cheap• How to grow in the “longest” soft market
– Premiums higher than commercial – “Don’t worry the market will get hard again – its cyclical”
– Need to increase reserves– The local agent – pressure from the golf course
• The breakup of your first love– Losing a founding member
• Are we still big enough?• What information to share in the future?• So, do we want another relationship?
Adulthood
• Other relationships– Expanding insurance coverage
• Health• Workers’ Compensation• P & C• Short term disability
– CIE – Continuing Insurance Education• Continuously changing rules and regulations• New President?