Selecting a Captive Insurance Domicile and Captive Manager
Selecting a Captive Insurance Domicile
The main issues to consider when forming a captive domicile are as follows:
The Political Stability of the Domicile
A stable political environment is essential to ensuring that laws are not suddenly changed that could impact a captive's assets and its ability to operate.
Capitalization requirements
Different domiciles have different laws regarding the amount of capital that is required to start a captive. One of the main advantages of the captive approach is that the capitalisation and surplus requirements of starting up a captive can be lower than they would be for forming an onshore insurance company.
Regulatory Requirements
Different captive domiciles have different capitalization, reporting, auditing and loss reserving requirements.
Accessibility
It is often a requirement that board meetings are held in the captive's domicile and consequently it makes sense to domicile a captive in a convenient location. Being close to or in the same time zone is helpful when communicating with local service providers.
Availability of Talent
Ensuring that professionally competent people and local organisations are available to manage a captive as well as to handle funds is an important issue to consider.
Fronting Company and Reinsurer Requirements
Insurance companies and reinsurers will need to approve a domicile as well as the individual captive being used.
Fees and Taxes
These vary by domicile and need to be determined as part of the overall cost.
Formation time
Generally, the more established a captive domicile is, the quicker the captive formation process will be.
Selecting a Captive Manager
The Role of the Captive Manager
With the exception of the largest and most established captives, the majority of captives are managed by third parties that have special expertise in captive management.
The services performed by a captive manager vary according to domicile, type of captive and captive manager but can include the following:
- Premium Collection
- Underwriting Services
- Policy Issuance Services
- Claims Services
- Accounting Services
- Investment advice
- Claims adjusting
- Providing local directors and officers
- Drawing up Quarterly and Annual Reports
- Handling negotiations with reinsurers and reinsurance intermediaries
- Recommending other Service Providers.
- When selecting a captive manager, several factors need to be taken into consideration which can include:
Other questions to consider are as follows:
Is the Captive Manager established with a sound reputation?
It is important to determine how long the captive manager has been in business and how many clients they have.
Does the Captive Manager have the expertise in the type of captive being formed?
Different types of captive require different expertise, as regulations can vary according to the type of captive.
Is the Captive Manager located in the chosen domicile?
Local knowledge is essential, especially in offshore domiciles.
Does the Captive Manager have adequate resources to handle additional business?
Insurance business can require a large volume of transactions. A captive manager must have adequate resources to execute them in a timely and efficient fashion.
Can the Captive Manager provide access to other service providers if required?
Captive managers will often have established relationships with other service providers such as legal counsel accountants and investment managers. It can often be advantageous to take advantage of existing working relationships where both parties are comfortable dealing with each other.
Does the Captive Manager have any experience in the type of business that the captive is insuring?
Depending on to what extent the captive manager is to get involved with the underwriting and claims aspects of the captive program a knowledge of the class of business being written by the captive is important.
What functions can the Captive Manager perform?
It is important to ensure that the captive manager can provide all the services expected by the captive user and which are not being outsourced to other service providers.
How will the Captive Manager be compensated?
Different captive managers will have different fee structures depending on the volume of business going through the captive and the services being performed.
Read our guide and find out why selecting a captive insurance domicile is a key decision that will have an impact on how a captive program is put together.
Also in this section
A Brief History of Captive Insurance
Reasons to Set Up a Captive Insurance Company
Performing a Captive Insurance Company Feasibility Study
Different Types of Captive Insurance Company
Selecting a Captive Insurance Domicile and Captive Manager
Reinsuring Captive Insurance Companies
