To view the post on the SIGMA Actuarial Consulting Group blog, click here.
Today we are joined by Sam Espinosa, Co-Founder and CMO of XN Captive, who is shedding a light in this Q&A on the advantages of captive solutions, the evolving market, and how businesses can leverage captives to drive growth and resilience.
Historically, captive managers have played a largely administrative role during the feasibility study—collecting and organizing documents, coordinating with various service providers, and checking regulatory boxes. These are vital functions, and might suffice in circumstances where the captive options are limited to a particular manager’s offering. In other words, when the manager fits the business into a captive, rather than shaping the captive to fit the business.
At XN Captive, we deploy a world-class team with the expertise and operational flexibility to prioritize suitability over expediency. Fundamentally, we view the feasibility study not as a one-step requirement to overcome, but the first step in a long term partnership to deliver a captive that will best serve your business—now and in the future.
Crucially, XN Captive also integrates every necessary professional service, including legal, tax, actuarial, reinsurance, claims, and regulatory support, during the feasibility study. This approach brings forward crucial insights that can (and should) influence captive strategy, while creating operational efficiencies in the process.
We recognize that captives are complex, and real challenges are born from that complexity. For many companies, even the initial parts of the process can feel like taking on a second career—a daunting commitment for leaders already at capacity in their primary roles. Our all-inclusive approach allows you to actively participate, without taking on responsibilities that might distract you from your core business.
In sum, captive managers have traditionally treated the feasibility study as a check on the list, we believe in a more engaged, thoughtful approach. More than managers, we are true partners who guide you from ideation through formation and annual renewal, ensuring your captive is a cornerstone of your long-term risk strategy.
When assessing captive potential, most managers start with what could be described as an insurance review. It involves collecting documents, like past policies, loss data, and pain points (e.g. premium volatility or denied claims). The review is intended to uncover the ways a captive might provide relief, but largely functions as a means to an end: A feasibility study is required to form a captive, and your insurance history is required to complete the study.
This approach delivers only a retrospective view of risk, missing the strategic potential a captive can offer. Treating the feasibility study as a standalone deliverable ignores its critical implications—not only during formation but also in securing formation and setting up the captive for future success. Isolating the study as a formality can lead prospective owners to underestimate the work still ahead. And when captive managers don’t take ownership of that work, clients are left to navigate it alone. Most managers, at best, offer a supporting role; after all, until the captive is fully formed, they see no entity to manage. As a result, the captive owner is left with a dizzying array of responsibilities, from sourcing and vetting to coordinating and paying a litany of advisors, consultants, and specialists needed to finish the job.
At XN Captive, we take a holistic approach. A captive is more than a fix for past frustrations—it’s a dynamic opportunity to serve your current and future objectives. The feasibility study is integral to the puzzle, but all of the other pieces have influence and importance. That’s why we include every professional you need, at every point you need them.
We start with a deep dive into your operations, risk landscape, and growth plans, examining everything from new initiatives to potential regulatory challenges and expansion opportunities. We incorporate predictive analytics and insights to forecast how future risks may impact your captive, structuring it to serve as a proactive asset rather than a reactive tool. We work with you to identify areas across your business where a captive could add value, whether by supporting operational resilience, expanding into new lines of coverage with favorable economics, or enabling your long-term growth plans.
This is where you, as a prospective captive owner, add valuable context: bring us your vision, ambitions, and the challenges you foresee. Whether it’s expanding into new markets, managing unique industry risks, or leveraging insights into emerging opportunities, these factors amplify our ability to create a captive that isn’t just functional—but seamlessly with your strategic vision.
Ultimately, we are co-creating a foundation for growth. While your insurance history tells a story about where you’ve been, it doesn’t dictate where you have to go. And, as with any well-designed structure, we may uncover constraints that call for adjustments. Imagine designing a dream home only to discover structural limitations that affect plans for a second story. Just as you’d want an architect to adapt wisely, we work to balance your vision with practical realities, ensuring your captive is prepared for the long haul. With creativity, flexibility, and commitment, we shape captives that grow with your business needs and ambitions.
The data flow into an actuarial study can sometimes feel like trying to fill cups of water with a fire hose—the tasks are clear enough, but neat and complete answers can be a challenge.
We leverage qualitative and quantitative assessments to help deliver a more complete picture for study. Quantitatively, this can be things like past policies, historical claims, and exposure data. Qualitatively, it can include details about your business plan, growth goals, market dynamics, client/customer trends, and more.
When it comes to the numbers, data quality and accuracy are critical; reliable inputs lead to reliable outputs. For instance, three to five years of claims history provides actuaries with the basis to realistically model expected losses. This ultimately supports a robust, sustainable captive structure. However, when historical data is missing or inconsistent, it complicates our ability to meet regulatory standards and perform high-quality calculations.
We’ve simplified this data intake with a comprehensive digital survey—a step-by-step guide designed to capture everything an actuary needs in one place. Whether you’re inputting data, uploading documents, or providing helpful context to important questions, this tool minimizes repetitive emails, closes data gaps, and avoids miscommunications that can lead to mistakes or delays. Instead of endless back-and-forth, our survey efficiently gathers and organizes all key information so we can dive straight into the analysis. By reducing administrative hassle and enhancing transparency, we’ve smoothed the path to a quicker, more seamless captive formation. We also encourage active engagement by making it easier for you to understand what’s happening, and why, at every step.
Imagine a concert where each musician has their own solo, but must come together for a powerful finale—that’s what it’s like submitting a captive for regulatory approval. Every specialist, from actuaries to tax advisors, reinsurance partners to legal reviewers, brings their own “sound.” It’s the captive manager’s role to blend these elements into a unified, harmonious application.
At XN Captive, we coordinate closely with each expert, synthesizing everything, like actuarial findings, financial projections, and compliance data, into one cohesive narrative. This isn’t just paperwork; it’s strategic storytelling. Each element of the submission ticks a regulatory box—while also demonstrating how your captive is a valuable asset aligned with your broader business goals and the requirements of your domicile.
Unlike a concert, where each solo follows in sequence, the feasibility study has multiple overlapping work streams. Reinsurers, for example, may want to review the captive’s detailed economics before setting terms, but actuaries need the specifics of the reinsurance contract to finalize financial models. Managing these “overlapping solos” requires careful timing and coordination to keep everyone and everything in sync.
It’s a balancing act, but with our expertise, the pieces align smoothly and result in a submission that regulators can understand and appreciate. And, because each part is seamlessly integrated, you avoid unnecessary questions or delays—which helps to get your captive off the ground with minimal friction.
Once a captive is launched, the manager’s role shifts from “get it live” to ensuring it thrives. Captives aren’t set-it-and-forget-it solutions; they’re sophisticated entities that require ongoing management to stay valuable, compliant, and aligned with business goals. At XN Captive, we stay deeply involved, monitoring your captive’s solvency, liquidity, and reserves to ensure financial strength and regulatory compliance over time. By managing the books, overseeing surplus levels, and continuously analyzing capital adequacy, we help safeguard your captive’s financial stability while guiding strategic surplus deployment.
XN Captive also manages essential annual tasks—such as audit preparation, regulatory filings, accounting, and board governance requirements—to keep your captive in peak operating condition. This comprehensive oversight means your captive not only meets compliance standards, but also has the structural flexibility to expand as your needs evolve.
A well-managed captive also presents opportunities for profit deployment, and our investment management services are designed to maximize that potential. Whether you aim to invest in capital markets, reinvest in your business, or establish a dividend program, we work with you to optimize your financial strategy. Our approach is to protect and enhance your captive’s financial potential, integrating seamlessly with your existing framework or managing the portfolio for you.
Claims administration is another critical area where XN Captive offers support. We integrate with your current third-party claims administrator (TPA) or assist in selecting and managing a TPA that’s well-suited to your specific risks. By overseeing this process from sourcing to implementation, we reduce your administrative load and ensure that claims processing aligns with your captive’s objectives and regulatory expectations.
As your business grows, we continually assess how your captive can evolve to support new strategic goals. Whether expanding into new regions, incorporating additional lines of coverage, or adjusting to changing market conditions, we ensure your captive is responsive and ready for these shifts. So, while the operational phase might sound like “keeping the lights on,” our role goes well beyond maintenance. Our proactive strategy and meticulous management ensure your captive actively supports long-term resilience and growth.
Captives have been gaining a lot of attention, and for good reason—they’re one of the few areas in today’s insurance landscape that offer control, customization, and a tangible return on investment.
Traditionally focused on a company’s internal risks, captives are increasingly being used by distributors–like MGAs, MGUs, and agencies–who want to take a share in underwriting profit by assuming a portion of third-party risk. If these entities believe in the products they’re offering or creating, a captive can enable them to participate in underwriting outcomes, making their own capital part of the risk equation. This approach not only aligns incentives, but also addresses the growing capacity challenges across the market, where insurers are often hesitant or unable to take on additional risks at favorable terms. Captives help bridge this gap, allowing businesses to take control where traditional insurers might pull back or price coverage beyond reach.
Adding to this momentum, recent legislative changes in key captive-friendly domiciles have been highly favorable. Regulators in jurisdictions eager to attract innovation are expanding the scope of permissible risks, with a specific focus on allowing third-party risks in captives. This trend means more flexibility and economic upside for captive owners, as they can now structure captives to address a broader set of challenges—from unique, high-impact exposures to the strategic integration of profitable third-party risks.
We’re also seeing captives take on increasingly complex risk types, cyber liability captives, supply chain disruption coverage, and even employee benefits, where companies increasingly look to gain control over healthcare costs, tailor benefits to their workforce, and retain underwriting profits to increase cost efficiency and employee satisfaction. As captives evolve to cover these diverse risks, businesses can leverage them as valuable, multi-faceted tools for comprehensive risk management.
Looking ahead, we anticipate a continued trend of captives evolving into central hubs for comprehensive risk management, moving far beyond niche or last-resort solutions. With advancements in data analytics and predictive modeling, captive managers can now offer clients increasingly precise insights, enabling data-backed decisions on risk management. We’re excited to be part of this shift, harnessing technology and our own insights to ensure captives remain relevant and powerful in a rapidly changing world of risk.
In the grand scheme, captives are transitioning from “nice-to-have” risk management tools to cornerstone elements of a forward-thinking strategy. And that’s a trend we’re fully aligned with—because we believe that, with the right insights, tools, and adaptability, captives have the power to redefine how companies think about and manage their risks.
We recognize that actuarial insights are the backbone of a successful captive, informing everything from the initial feasibility assessment to ongoing performance and future growth. Our platform is designed with this actuarial foundation in mind, offering tools that facilitate a data-rich, analytical approach from start to finish.
During the upfront assessment, our platform enables a deep dive into historical claims, risk exposure data, and financial metrics, creating a precise actuarial profile of your current risk landscape. We collaborate with our actuarial partners to leverage this data, using advanced modeling tools to simulate potential captive scenarios under various risk conditions. This collaborative, data-driven approach lets us quantify the economic viability of a captive, aligning actuarial assumptions with your business’s unique goals to ensure feasibility recommendations are grounded in rigorous analysis.
Once the captive is operational, XN Captive’s platform serves as a continuous actuarial monitoring tool. We track actuarial KPIs in real time, from loss ratios and claims trends to capital adequacy metrics, to ensure the captive remains within expected performance parameters. Actuarial data isn’t simply collected and reported; it’s actively analyzed to identify early indicators of deviation from initial projections. This proactive oversight helps maintain actuarial soundness and flags any emerging risks that may require recalibration. For example, if claims frequency or severity trends shift, our platform equips our actuarial team to recommend timely adjustments, whether it’s tweaking premium levels, modifying reinsurance structures, or revisiting capital allocations.
Where XN Captive’s platform truly supports actuarial excellence is in creating opportunities for future captive optimization. The platform integrates predictive analytics, actuarial insights, and industry trend data to model scenarios that identify growth areas or cost-saving opportunities. When new industry risks emerge, such as heightened cyber or environmental exposures, the platform helps actuaries simulate their potential impact on your captive’s performance. Similarly, if there are shifts in reinsurance markets or regulatory environments, our platform’s scenario modeling enables actuaries to suggest optimized reinsurance structures or coverage expansions.
In short, XN Captive’s platform empowers actuarial expertise at every stage, from foundational feasibility to long-term optimization. By seamlessly integrating data collection, analysis, and forward-looking modeling, we ensure that your captive not only operates efficiently but also evolves strategically, supported by continuous actuarial insights that keep it aligned with your goals. This platform-driven, actuarially focused approach positions your captive as a resilient, adaptable asset within your broader risk strategy.
--
You can find more educational resources from SIGMA Actuarial Consulting Group here.
