Captives

Over the past years, as insureds have faced increasing deductibles, restricted coverage and higher prices for the risk transfer that is available, the focus on alternative risk finance has increased.

The term "alternative risk finance" encompasses various non-standard approaches to dealing with hazard risk, among them: captive insurance companies, finite risk "insurance," catastrophe bonds, contingent equity/debt, and derivative risk transfer. The most common form of alternative funding sought by clients is Captives as they can play an integral role in the successful implementation of a global risk financing strategy. Reasons for forming a captive may include: lack of capacity in the market; improved cash flow; insulation from fluctuating costs in the market; control of claims and risk control services; lower long term costs by not being subject to the commercial market overhead, profit, premium taxes, etc. These reasons, among other things, will determine the structure best suited to your needs.

The simplest form of a captive is a pure captive which is a wholly-owned insurance subsidiary that writes predominately the risks of its owner. It is an insurance company that is owned by its members or insured, and is usually domiciled in a specialized location, either onshore or offshore. It is not intended to underwrite or accept the exposures of unrelated organizations. Captives are a more formalized vehicle for pre-funding the cost of retained risk. Benefits to be gained from this approach include increased overall control of your total risk management program and its various components. In addition, under a captive program, underwriting profits and investment income from premiums are returned to the participants or sponsors.

Association Captive is a captive insurer that only insures risks of the member organizations of an association and the affiliated companies of those members. This type of captive is designed to serve a single industry.

Risk Retention Group (RRG) is a form of captive that is an associated captive that has elected to establish itself as a Risk Retention Group under the aegis of the Products Liability Risk Retention Act of 1981, as amended by the Liability Risk Retention Act of 1986. The Act provides that a special purpose insurance company, organized to underwrite the liabilities of an association, may do so on a nationwide basis after it has become chartered and licensed in one state.

Rent-a-captive programs deliver similar benefits to other types of captive structures without capitalization requirements or hands-on involvement in overseeing the captive program. It is organized by a sponsor to offer a facility to other organizations seeking the benefits of a captive but not wanting or able to form their own. This program may also afford certain tax and regulatory advantages that aren't available through other alternative market mechanisms.

Agency captive is a captive insurer that is owned by an insurance agency or brokerage and that only insures risks of policies that are placed by or through the agency or brokerage.

A group captive can be formed from companies sharing a common industry or demographic profile, or from a group of diverse companies sharing the same risk management philosophy. The group is able to obtain customized claims management and loss control services, in addition to receiving the financial rewards inherent in a captive program.

WHY KRAUTER CAPTIVES?
Choosing the location of your captive is critical. Krauter & Company will evaluate your firm's goals, risk strategy, geographic location, and the infrastructure, tax structures and treaties of various captive domiciles to assist you in identifying the most optimal domicile for your business. Our knowledge in the areas of cost allocation methodologies and captive support services will provide you with the on-going expertise you need to support your unique situation.

MORE INFORMATION? CONTACT US.
For more information about Krauter & Company’s Captive capabilities or professionals, send your request to:info@krautergroup.com

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