What makes XN Captive unique or different from other captive managers?
XN Captive's all-inclusive approach coordinates every necessary professional service into a single, streamlined workflow that begins with defining your strategy and continues past formation. Our modern digital platform enhances the experience with real-time data, reporting, and management features. XN Captive also provides extensive advisory services that include design and launch for innovative or novel captive programs, complex reinsurance and fronting procurement, management of captive investments, claims, and compliance, evaluation of existing captive insurance programs, and redomestication of off-shore captive entities.
XN Captive
1
What services does XN Captive integrate into its process?
XN Captive integrates all professional services including actuarial services, accounting, tax and legal analysis, claims management, investment advisory, reinsurance and fronting arrangements, day-to-day operations, and performance monitoring.
XN Captive
How do you form a captive with XN?
The process includes assessing current insurance circumstances, meeting with the XN team, submitting detailed insurance information, initiating a feasibility study to produce the necessary documents, and launching the captive after state regulator approval.
XN Captive
How does XN Captive ensure better risk management?
XN Captive makes engaging with your captive easier, and more transparent. When you can see the interworkings first hand, and watch surplus grow, prioritizing risk management takes on a new focus. Quantifiable results show everyone the real value sound risk management.
Management
How does XN Captive handle regulatory compliance?
XN Captive manages ongoing regulatory relations and compliance, including all necessary documentation, licensing, business plan preparation, legal planning and tax implications advisory, financial accounting, necessary audits, and policy renewals.
Regulatory
What is the XN Captive digital platform?
The XN platform provides full access to your captive online for easy review and management, including interactive tools, deep analytics, and full integration of professional services.
XN Captive
What is captive insurance?
Captive insurance allows a business to cover risks create their own insurance company, often a wholly owned subsidary. The company then pays a premium to the captive, the captive reimbuirses the company for any claims, and the company keeps what's left (surplus) as profit.
General
How does XN Captive help with the feasibility study?
XN Captive assists with the feasibility study by submitting detailed insurance information, collaborating with actuaries, and providing a data-driven analysis to validate the business plan for the captive.
Actuarial
What are the benefits of owning a captive?
Benefits include total control over insurance policies, tailored coverage, better risk management, instant reimbursement for claims, asset protection, and potential financial returns from retained surplus. For businesses covering third party risks, a captive can allow you to retain more underwriting profit.
General
What is reinsurance?
Reinsurance provides a safety net for captives by covering losses beyond a certain threshold, helping manage significant risks, major losses, and financial stability.
Reinsurance
How does captive insurance differ from traditional insurance?
Traditional insurance involves paying premiums to an external insurer, while captive insurance involves creating a new insurance entity that retains the premiums and pays out claims, offering more control and potential profit retention.
General
How does XN Captive streamline the captive formation process?
XN Captive reduces the time commitment to around 25 hours, offers a flat fee, manages all services, and can complete the process in several months. If a business were to handle the process internally, it likely requires 300-400 hours of man hours, involves the soliciting and coordination of 10 distinct professional services, and includes many unique costs and fees.
XN Captive
What is XN Captive's platform?
The platform offers tools for real-time monitoring, in-depth analysis, and advanced reporting to maximize the captive's potential and maintain compliance. The platform promotes clarity and transparency by allowing your business to access your captive detail in a single place.
XN Captive
What does XN Captive do once a captive is formed?
XN Captive provides ongoing management services including operational support, financial management, performance monitoring, third-party vendor selection advisory, regulatory compliance, and strategic advice for leveraging the captive for growth.
XN Captive
What are the challenges of forming a captive?
Forming a captive without a captive manager can involve a 300-400 hour time commitment, high costs, the need to coordinate ten professional services, and a 12 month timeline, making it daunting for mid-market businesses that is not likley to have the requisite in-house experience.
General
How does XN Captive help with claims?
XN Captive will identify the ideal claims service for your business to ensures swift, predictable processing, reducing administrative headaches and providing instant reimbursement through a tailored approach.
Claims
Does XN Captive manage investments?
XN Captive provides banking management and investment advisory oversight, ensuring that the captive's surplus is effectively managed and invested for optimal returns.
Investment
How does XN Captive support IRS compliance, audits, and regulatory issues?
XN Captive's team of experts work proactively to ensure compliance with federal, state, and excise tax and regulatory requirements, as well as ongoing status and compliance assessments for the captive.
Regulatory
How is captive insurance different than regular or traditional insurance?
Captive insurance offers more control, potential financial returns, customized coverage, stablized costs, and improved risk management compared to the more rigid, volatile, and often costlier traditional insurance options.
General
How does XN Captive's platform assess risks and plan the captive?
The platform includes interactive tools and simulators to explore captive potential, plan for the future, and provide in-depth analysis for informed decision-making. XN has assembled a team of specialists in all areas of captive planning, formation, and management that coordinate internally to ensure that your business puts the best plan forward.
XN Captive
What are the financial benefits from owning a captive?
A business can expect to retain surplus from unused premiums, generate revenue from investments, and reinvest in growth opportunities, making captive insurance a valuable financial asset.
General
What is the importance of a feasibility study in the captive formation process?
A feasibility study is crucial for validating the business plan for the captive, analyzing risk exposure, ensuring financial viability, and meeting regulatory requirements. Once complete, the feasibility study produces documentation that must be reviewed and approved by regulators. In short, the study defines the rules by which your captive will operate, supported by actuarial principles.
Actuarial
How much can I make with a captive?
XN Captive provides a Quiz to assess current insurance circumstances, identify captive potential, and offer insights into how a captive can benefit the business.
Investment
How does XN Captive assist with funding for captives?
XN Captive can help your business secure funding for captive launch and operation, providing access to capital markets, lender networks, and alternative funding sources to support capitalization and risk assumption.
XN Captive
Why might insureds require coverage from Rated or Admitted insurers?
Many insureds are required by contract covenant or statutory requirement to carry coverage from a Rated (typically A- AM Best) or Admitted insurer.
Reinsurance
What tax services does XN Captive provide?
XN Captive offers comprehensive analysis and planning of tax implications, evaluating tax-efficient structures, premium deductibility, and compliance with tax regulations to minimize liabilities.
Accounting
What is XN Captive's annual review service?
The annual review service provides a comprehensive evaluation of captive performance, including financial analysis, claims experience review, compliance assessment, and strategic planning updates.
XN Captive
How does XN Captive handle regulatory approvals?
XN Captive facilitates regulatory approvals for captive operations, including license applications, regulatory filings, and compliance reviews to ensure legal authorization and regulatory adherence.
Regulatory
What is insurance paper?
Insurance paper refers to both the insurance policy itself and the carrier underwriting that policy, used in the context of retaining risk via a Captive.
General
Are legal services included with XN?
Yes. XN Captive offers strategic legal guidance and review of business plans, contractual agreements, and compliance frameworks to ensure alignment with regulatory standards and protection against legal risks.
Legal
What ongoing risk mitigation strategies does XN Captive implement?
XN Captive continuously identifies, assesses, and addresses risks within the captive to minimize their impact on financial performance and stability through tailored risk management practices.
Management
What type of reporting capabilities does XN Captive provide?
XN Captive offers robust reporting capabilities, including statutory accounting, financial statement preparation, performance tracking, and peer comparisons to support strategic decision-making and regulatory compliance.
XN Captive
Does XN help with reinsurance?
XN Captive manages reinsurance negotiations and agreements, securing coverage to align with risk management objectives and financial requirements, and handling reinsurance commission payments.
Reinsurance
How does XN Captive support policy administration?
XN Captive efficiently manages insurance policies, including issuance, endorsements, and claims handling, supported by robust systems and streamlined processes to enhance operational efficiency.
XN Captive
Is captive insurance a good idea for my business?
We're here to answer that exact question. As a first step, you can take the Quiz to get an instant assessment. Or, you can book a call with our experts to go over your circumstances and come away with a clear path forward that accounts for your risks, needs, options, costs, and potential returns on investment.
General
What is the role of reinsurance in fronting arrangements?
Fronting is a reinsurance structure where the fronting insurer cedes the risk to the captive, transferring it off their balance sheet while still appearing as the insurer on paper.
Reinsurance
What is the role of insurance ratings?
Insurance ratings, provided by independent Rating Agencies like AM Best, give transparency into the financial stability of the insurer, ensuring they can pay claims.
Reinsurance
What information is needed for the feasibility study?
Information such as financial statements, past policy applications, current insurance policies, recent loss runs, and future growth plans are collected.
Actuarial
Why is collateral required in fronting arrangements?
Collateral is required to mitigate credit and statutory risk, ensuring the fronting carrier is protected if the captive defaults or to avoid a surplus penalty from unauthorized reinsurance.
Reinsurance
How does fronting benefit captives?
Fronting allows captives to access Rated or Admitted paper, meet insurance requirements, and support coverage needs that the captive might not be able to meet on its own. Without fronting, many captives wouldn't be able to include the types of risk in their policies that make captives attractive.
Reinsurance
What types of collateral can be used in fronting arrangements?
Types of collateral include cash, Letters of Credit, Funds Withheld accounts, and Regulation 114 Trusts, each providing different benefits and fulfilling different needs.
Reinsurance
Why do Fortune 500 companies own captives?
Over 90% of Fortune 500 companies own at least one captive because they understand the value that they can deliver, and have dedicatrd in-house teams to manage the complex process of planning, forming, and managing them.
General
How much does it cost to form a captive?
The cost to form a captive can vary tremendously, and can be influenced by a variety of factors including where the captive is domiciled, the captive structure, the type and amount of coverage(s) included, and the complexity of your organization. For captives that plan to cover third party risks, there may also be additional costs to develop your captive insurance program. The XN team can help you get a better sense of the cost after discussing your captive needs and goals.
General
What is included in the loss projection and premium analysis?
It includes estimating future losses (loss distribution), defining the captive's capacity (loss pick), and determining the total amount needed to fund the captive.
Actuarial
What is the role of a captive manager?
The role of a captive manager, including the services they provide, can vary greatly. Most captive managers provide expertise upfront, and management services once the captive is formed. XN Captive has the broadest and most comprehensive service offering to handle every step of the planning, formation, and eventual management of a captive.
Management
What is fronting in insurance?
Fronting arrangements allow an insurance carrier to charge a fee for lending their paper to a group, appearing as if they are insuring them while the captive's own capital backs the policy.
Reinsurance
Does XN help write a business plan?
Yes, generating a business plan is part of the included service offering.
XN Captive
What is included in a captive business plan?
A captive business plan includes an executive summary, company introduction, strategy, goals, market dynamics, leadership team, target audience, risks, coverage lines, capitalization plan, and service providers.
General
How much does a feasibility study typically cost?
Depending on the complexity, a feasibility study can cost between $20,000 and $50,000 due to the extensive time and expertise required.
Actuarial
How is a captive approved by regulators?
After completing the feasibility study and business plan, the state’s Department of Insurance issues a license authorizing the captive to provide insurance.
Regulatory
How are policies chosen for a captive?
Captives are designed to retain premium surplus. Therefore, well-suited policies are those for which you consistently pay more in premiums than you file in claims, year after year. On the contrary, if the cost of coverage for a particular policy is often less than your annual losses, it may not be fit for a captive. Ultimately, the policies chosen for your captive are influenced by the required capital, collateral, fronting, and reinsurance. XN helps help you make this determination, and partners with you to steadily and safely expand your captive operations to include as many well-performing policies as possible over time.
General
How does XN help with fronting arrangements?
XN guides clients through fronting arrangements, providing expertise on specific risk situations and ensuring compliance with regulatory and contractual requirements.
XN Captive
How do I chose a domicile?
Domicile choice is influenced by factors such as types of coverages allowed, administrative responsibilities, financial requirements, and taxation. The XN team will review your insurance circumstances to help you decide on the optimal domicile.
General
What is the purpose of a captive business plan?
The captive business plan packages the feasibility study with explanations of the captive's strategic direction, management framework, and operational readiness. The captive business plan will be presented to regulators during the approval process, and can also assist in securing fronting or reinsurance arrangements.
General
What is a financial pro forma in captive formation?
The financial pro forma simulates your captive's performance over five years, including expected and adverse scenarios, and includes income statements, balance sheets, and cash flow statements.
Actuarial
How does reinsurance benefit traditional insurance companies?
Reinsurance allows traditional insurers to increase their coverage capacity and ensure that even large losses are recoverable by offloading risk.
Reinsurance
What happens after a captive is approved?
Once state approval is obtained, the captive is officially authorized to provide insurance to the parent company, marking the completion of the formation process. The captive can then be funded with a premium and can reimburse claims.
General
Why is the leadership team of a captive important?
It ensures that the captive is managed by knowledgeable professionals committed to regulatory compliance and ethical business practices.
General
How is the day-to-day operation of a captive managed?
Day-to-day operations include claims handling, investment management, and compliance, which can be managed by captive managers or recommended partners.
Management
Why are coverage lines scrutinized in a business plan?
Scrutiny of coverage lines evaluates the captive's risk exposure and its capability to provide adequate coverage, ensuring it meets claim obligations.
General
What is reinsurance?
Reinsurance is insurance for insurance companies, where insurers transfer some of their risk to another insurer to protect against significant losses.
Reinsurance
How does reinsurance work for captives?
In captives, reinsurance involves directly negotiating with reinsurers to offload risk, often with the help of captive managers who have industry expertise.
Reinsurance
What types of reinsurance are available for captives?
The three main types are Excess of Loss, Aggregate, and Quota Share reinsurance, each offering different ways to manage risk and coverage.
Reinsurance
What is the purpose of a capitalization plan in a business plan?
A capitalization plan assesses the captive's financial robustness and solvency, ensuring it can cover potential losses and uphold underwriting commitments.
General
What is Excess of Loss (XoL) reinsurance?
XoL reinsurance covers losses that exceed a specified amount, known as the Attachment Point, up to a certain limit.
Reinsurance
Why are actuaries needed?
Actuaries provide scientific rigor to validate the captive's business plan, calculate loss projections, determine premiums, and ensure financial viability.
Actuarial
What is the pricing summary in a feasibility study?
The pricing summary outlines cost allocation, ideal policy types, and retention levels, helping to develop a financially viable captive structure.
Actuarial
What is the role of actuaries in reinsurance planning for captives?
Actuaries calculate the total risk exposure and recommend optimal reinsurance attachment points and coverage limits.
Actuarial
What are the challenges of negotiating reinsurance for captives?
Challenges include knowing which parties might be interestred in your specific risk profile, finding favorable terms, managing complex negotiations, and securing coverage based on risk history and desired attachment points.
Reinsurance
How does reinsurance impact a captive's financial performance?
Effective reinsurance strategies can optimize a captive's financial performance by balancing premium costs and risk exposure, ultimately protecting the captive assets from catastropic loss.
Reinsurance
Why is reinsurance crucial for new captives?
New captives are more vulnerable to significant losses; reinsurance provides a safety net, protecting the captive’s financial health from the onset.
Reinsurance
How does XN Captive ensure effective reinsurance strategies?
XN Captive uses actuarial analysis, market expertise, and tailored risk assessments to develop effective reinsurance strategies for captives.
Reinsurance
What is Quota Share reinsurance?
Quota Share reinsurance involves the captive and reinsurer sharing risk in a set proportion, such as 25% for the captive and 75% for the reinsurer.
Reinsurance
What is the the attachment point in reinsurance?
The attachment point determines when reinsurance coverage begins, affecting both reinsurance costs and the captive’s risk exposure.
Reinsurance
How are reinsurance premiums determined?
Adjusting the attachment point and coverage amount can help control reinsurance premiums, balancing risk and cost.
Reinsurance
How do deductibles work in captive insurance?
Captives can incorporate deductibles, where the insured pays a specified amount before the captive covers the remaining loss.
Reinsurance
How does Aggregate (Agg) reinsurance work?
Aggregate reinsurance provides coverage after total losses exceed a predetermined threshold, covering subsequent losses for the policy term.
Reinsurance
What happens if a loss exceeds reinsurance policy limits?
Actuarial planning and captive manager oversight aim to prevent this, but significant losses are usually covered by reinsurance or additional capital.
Reinsurance
What role do captive managers play in reinsurance?
Captive managers may have established relationships with reinsurers, understand the market, and can negotiate favorable terms for their clients.
Reinsurance
What is a loss pick?
A loss pick is the official estimation of losses that will determine your captive's premium, selected by actuaries to protect the captive against unforeseen circumstances and regulatory scrutiny.
Actuarial
Which captive structures does XN specialize in?
XN Captive specializes in forming nearly any type of captive, including single-parent captives, group captives, agency captives, rent-a-captives, and protected cell companies.
XN Captive
How can businesses leverage reinsurance to grow?
Reinsurance allows businesses to manage large risks, stabilize their captives, and reinvest surplus funds for growth.
Reinsurance
How do I get started?
To get started, you can Take The Quiz for an instant, detailed assessment of your captive opportunity. You can also contact us for a free consultation to discuss your insurance needs and explore how a captive can benefit your business.
XN Captive
What are the risks associated with captive insurance?
Risks include high initial costs, regulatory scrutiny, complex management, and potential for additional capital investment if losses greatly exceed projections.
General
What is the captive quiz?
The quiz is an online tool designed to assess your current insurance circumstances and identify how well-suited your business is for a captive, providing an instant XN Captive Star Rating and an simulated Pro Forma that projects captive performance out 5 years.
XN Captive
What are the tax considerations for captive insurance?
In certain circumstances, Captives can provide tax benefits, such as deductible premiums and tax-deferred investment income, but must comply with regulatory standards, ethical business practices, and common sense to avoid penalties.
Accounting
How long does a feasibility study take?
A feasibility study can take 1-3 months to complete, depending on the complexity of the analysis and the specific requirements of your business.
Actuarial
What is a Risk Retention Group (RRG)?
Risk Retention Groups (RRGs) are group captives formed under the Federal Liability Risk Retention Act of 1986, allowing groups to self-insure liability risks, providing cost-effective liability coverage and direct control.
General
What is a Group Captive?
Group Captives are owned by multiple, non-related organizations that pool their risks and resources, offering economies of scale, better reinsurance terms, and lower costs.
General
Do I have to form a captive after the feasibility study?
No, completing a feasibility study does not obligate you to form a captive. It is part of the required documentation for regulatory approval if you decide to proceed.
Actuarial
What is an Agency Captive?
Agency Captives are owned by insurance agencies, creating a new revenue stream beyond commissions and aligning interests with clients to produce profitable business and enhance client loyalty.
General
What is a Micro Captive?
Micro Captives are small captives with annual written premiums under $2.8 million, providing tax benefits and flexible coverage options, ideal for small to mid-sized businesses.
General
What types of companies benefit most from captive insurance?
Companies with high insurance costs, relatively low claims, and a commitment to long-term risk management often benefit most from captive insurance. Captives are particularly attractive in certain industries where risks might be unique, or where the traditional market offers little flexibility for coverage.
General
What is a Single-Parent Captive?
A Single-Parent Captive, also known as a Pure Captive, insures the risks of its parent company and affiliates, providing direct control over risk management and potential tax advantages.
General
Who is the "insured" when you own a captive?
When you own a captive, the insured is your business or any affiliated entities covered by the captive's insurance policies.
General
What are the steps in a feasibility study?
The steps include collecting business and insurance data, performing loss projections and premium analysis, developing financial models, and preparing a detailed business plan for regulatory approval.
Actuarial
What is a Series LLC?
Series LLCs create multiple series within a single limited liability company, with each series treated as a separate entity for liability and management purposes, offering flexibility and cost-effective risk management.
General
What is a Rent-a-Captive?
Rent-a-Captives offer access to captive benefits without significant capital investment. Owned by a third party, these captives provide a flexible and cost-effective way for businesses to self-insure.
General
What is a Protected Cell Company (PCC)?
Protected Cell Companies (PCCs), also known as Segregated Portfolio Companies, provide a legal structure that allows for the segregation of assets and liabilities into distinct cells, offering high asset protection and flexibility.
General
What is a Branch Captive?
Branch Captives are on-shore arms of off-shore captives, often used to cover employee benefits, providing access to the domestic market and allowing for domestic risk coverage.
General
XN Captive
General
Accounting
Actuarial
Advisory
Claims
Investment
Legal
Management
Regulatory
Reinsurance
Third Party Risk
Actuarial Analysis
Statistical assessment of risks and liabilities to inform premium setting and reserve adequacy, ensuring accurate pricing, reserving, and financial planning, and supporting captive's financial stability and solvency.
Actuarial Reserve
Provision for future claim payments and related expenses, based on statistical analysis and projections, ensuring captive's financial stability and solvency, and supporting adequate capitalization and risk management.
Actuarial Risk
Uncertainty surrounding future claims costs and liabilities, assessed and managed through actuarial analysis and reserves.
Administrative Fees
Fee for captive management services, encompassing various operational and regulatory activities.
Adverse Selection
Situation where higher-risk policyholders are more likely to purchase insurance coverage, leading to unfavorable loss experience for insurers.
Aggregate Limit
Maximum amount of coverage available under a reinsurance agreement for all claims during a specified period, providing financial protection against catastrophic losses and ensuring captive's solvency and viability.
Alternative Risk Financing
Methods other than traditional insurance for funding and managing risk, including captives, risk retention groups, and self-insurance pools.
Alternative Risk Transfer
Mechanisms other than traditional insurance for financing and managing risk, such as captives, risk retention groups, and catastrophe bonds, offering flexibility and cost-effective risk management solutions.
Annual Audit Prep
Detailed preparation for internal or third-party audits, ensuring compliance with regulatory standards.
Annual Premium
Yearly premium paid by policyholders into the captive, crucial for revenue forecasting.
Annual Premium Adjustment
Adjusts premium input for accurate financial forecasting, considering coverage changes and financial growth.
Annual Premium Increase
The projected annual adjustment in premium rates based on loss experiences, underwriting judgment, and economic conditions.
Annual Review
Yearly assessment of captive performance, ensuring alignment with strategic goals.
Annual Surplus
Captive's annual profit, essential for assessing financial health and strategic planning.
Annual Tax Filing Prep
Thorough compilation and analysis of financial records for accurate and timely tax filing.
Arm's length transactions
This is in contrast to "arm's length transactions," where the parties act independently and without any special relationship, ensuring that the transaction reflects fair market values and conditions.
Asset-Liability Management
Strategy for matching the duration and risk profile of assets with liabilities to minimize exposure to interest rate and liquidity risks, ensuring asset liquidity and stability, and supporting captive's financial sustainability and solvency.
Board Advisory Services
Professional support for captive governance, enhancing transparency and accountability.
Captive Domicile
Jurisdiction where a captive insurance company is incorporated and licensed to operate, chosen based on regulatory and tax advantages, infrastructure, and business environment.
Captive Feasibility
Assessment of the viability and suitability of forming a captive insurance company, considering various factors such as risk exposure, financial capacity, and regulatory requirements.
Captive Formation
Process of establishing and licensing a captive insurance company, involving regulatory approval and compliance, feasibility analysis, and strategic planning, and ensuring legal authorization and regulatory compliance for captive activities.
Captive Funds Advisory
Surplus management advice, optimizing reinsurance value and contingent capital access.
Captive Insurer
An insurance company established by a parent firm to insure the risks of the parent company or its affiliates. Captives offer control over risk management, claims handling, and insurance costs.
Captive Manager
Professional firm providing administrative and management services to captive insurance companies, ensuring compliance with regulatory standards, and facilitating efficient captive operations, and enhancing captive's governance and performance.
Ceding Company
Insurer that transfers risks to a reinsurer through reinsurance arrangements, outsourcing risk management and enhancing capital efficiency, and enabling captive to mitigate large losses and improve risk diversification.
Claims Admin Advisory
Strategic advice for claims management, optimizing processes and reducing loss adjustment expenses.
Claims Admin Management
Comprehensive management of claims handling operations for efficient and equitable resolution.
Claims Frequency
Number of claims filed over a specific period, indicating loss exposure and risk severity.
Claims Leakage
Unauthorized or excessive claims payments, resulting from fraud, errors, or inefficiencies in claims handling processes.
Claims Reserve
Funds set aside by an insurer to cover claims that have been reported but not yet settled, or incurred but not reported.
Claims Set Up
Streamlined claims setup processes, reducing administrative burden and enhancing client experience.
Claims Severity
Average cost per claim, impacting overall claims experience and financial outcomes.
Claims Tail
Period during which claims may be reported and settled, affecting captive's long-term liabilities, reserving needs, and financial reporting, and ensuring accurate estimation of future claim payments and liabilities.
Collateral Requirements
Assets or funds pledged by captive to secure obligations under reinsurance agreements, meeting regulatory and contractual requirements, and ensuring reinsurers' confidence in captive's financial strength and creditworthiness.
Combined Ratio
A measure used to assess the profitability of an insurance entity, calculated as the sum of the claims and operating expenses divided by the earned premium. A ratio below 100% indicates an underwriting profit.
Commutation Agreement
Contract between a captive and reinsurer to commute future reinsurance obligations for a lump-sum payment.
Cost of Reinsurance
The expense incurred from purchasing reinsurance coverage to mitigate the risk of large claims exceeding certain thresholds.
Cumulative Surplus
Aggregated funds, including profits and reserves, accumulated over captive's operating years.
Deductible
The amount that a policyholder is responsible to pay out-of-pocket before the insurer pays for any losses.
Domicile
The jurisdiction in which an insurance or reinsurance company is licensed to operate. It is important for regulatory, tax, and operational reasons.
Domicile Selection
Choice of jurisdiction for captive formation, considering regulatory and tax advantages.
Earned Premium
The portion of the policy premium that has been 'earned' by the passage of time, proportionate to the coverage provided.
Excess of Loss Reinsurance
A form of reinsurance that provides coverage when a set retention limit is exceeded, protecting insurers against high-severity losses.
Expense Ratio
Ratio of operating expenses to earned premiums, measuring operational efficiency.
Experience Rating
Method of adjusting insurance premiums based on policyholder's historical loss experience, reflecting individual risk characteristics.
Facultative Reinsurance
Reinsurance of individual risks where the reinsurer has the option to accept or reject individual risks presented by the ceding company.
Feasibility Study
An analysis conducted to determine the viability and potential success of establishing a captive insurer, considering financial, strategic, and regulatory factors.
Feasibility Study Consultation
Expert guidance during feasibility study, informing strategic planning and domicile selection.
Feasibility Study Fee
Cost of feasibility study, covering actuarial analysis and regulatory consultations.
Filing Fees
Fees associated with regulatory filings and approvals.
Financial Assessment
Rigorous evaluation of post-feasibility study financials to refine strategic decisions.
Financial Modeling
Analytical tool for projecting captive's financial performance under various scenarios and assumptions, supporting strategic planning, risk management, and decision-making, and ensuring captive's financial sustainability and success.
Fronting Arrangement
Agreement with a licensed insurer to issue policies and handle claims on behalf of a captive or self-insured entity, enabling access to regulated markets and facilitating risk transfer.
Fronting Insurer
Licensed insurer that issues policies and handles claims on behalf of a captive or self-insured entity.
Hard Market
Period of high insurance demand and reduced capacity, leading to increased premiums and stricter underwriting standards.
Incorporation Documents
Preparation and review of legal documents for captive incorporation, ensuring regulatory compliance.
Investment Consulting
Expert consultation on captive investment strategies, optimizing returns and compliance.
Investment Income
Earnings from captive investments, including dividends, interest, and capital gains.
Investment Management
Professional oversight of captive investment portfolios, maximizing returns and mitigating risk.
Investment Yield
Annual return on captive's investment portfolio, influencing overall financial performance.
Legal Events
Legal counsel and support for captive-related events.
Legal Planning & Review
Strategic legal guidance for captive business plans and compliance frameworks.
Liquidity Management
Management of assets to ensure sufficient liquidity to meet short-term obligations and claims payments, balancing liquidity needs with investment returns and risk exposure, and maintaining captive's financial resilience and stability.
Loss Adjustment
Reserve for post-claim adjustments, often set at 5% to cover unforeseen expenses.
Loss Development
Process of estimating ultimate claim costs based on past claims experience and current loss reserves.
Loss Portfolio Transfer
Transfer of an insurer's existing claims liabilities to a reinsurer, typically through a reinsurance agreement.
Loss Prevention
Measures to identify and mitigate potential sources of loss, reducing claims frequency and severity, and enhancing captive's risk management effectiveness, preventing financial losses and preserving capital.
Loss Ratio
Ratio of incurred losses to earned premiums, reflecting underwriting performance.
Loss Reserve
Estimated amount set aside to cover future claim payments and related expenses, based on actuarial analysis and claims experience, ensuring captive's ability to honor its insurance obligations and maintain financial solvency.
Market Conditions
External factors influencing insurance market dynamics, affecting captive formation and operation, and requiring proactive risk management, strategic planning, and adaptation to changing market trends and conditions.
Misc Consultation
Tailored advisory services addressing specific captive-related needs.
Non-Arm's length transactions
Business deals where the parties involved have existing relationships, which could influence the terms of the transaction. The parties might be related individuals (like family members), companies with common ownership, friends, or associates. Because of the personal connections, there's a potential for the terms of such transactions (like pricing, payment terms, or contract conditions) to not accurately reflect those that would be agreed upon by unrelated parties. This can lead to conflicts of interest or skewed financial outcomes that might not align with market or regulatory expectations, especially in contexts where fair pricing and independence are crucial, such as in financial reporting, taxation, and corporate governance.
Non-admitted Insurance
Insurance coverage provided by insurers not licensed or admitted in the policyholder's jurisdiction, subject to different regulatory standards and taxation.
Operational Expenses
Costs related to the daily operations of an insurance entity, including administrative fees, underwriting expenses, and general overhead.
Participating Policy
Insurance policy that entitles the policyholder to share in the profits and losses of the insurance company.
Policy Admin
Efficient management of captive insurance policies, enhancing operational efficiency.
Policy Renewal
Facilitation of policy renewal processes for seamless continuity of insurance protection.
Policyholder Dividend
Return of part of the premium to policyholders based on favorable claims experience or surplus distribution by the insurer.
Policyholder Surplus
Excess of assets over liabilities, indicating captive's financial cushion and ability to cover claims, and supporting its long-term stability and growth.
Portfolio Diversification
Strategy for spreading investment risk by allocating assets across different asset classes, sectors, and geographic regions.
Premium Tax
Tax imposed on insurance premiums paid by policyholders, varying by jurisdiction and insurance type.
Program Business
Group of insurance policies with similar characteristics, often bundled together for underwriting and administrative efficiency.
Quarterly/Annual Report
Automated report generation for regulatory compliance, incorporating financial and claims data.
Reciprocal Insurance Company
Mutual insurance arrangement where policyholders share risks and liabilities collectively, governed by a reciprocal exchange, providing flexibility and risk-sharing benefits.
Regulatory Approval
Facilitation of regulatory approvals for captive operations.
Regulatory Capital
Minimum capital required by regulators to ensure captive's financial strength and stability, providing a cushion against unexpected losses and ensuring compliance with regulatory standards.
Regulatory Compliance
Adherence to laws, regulations, and regulatory standards governing captive insurance activities, ensuring legal authorization, and regulatory compliance for captive operations, and avoiding penalties and regulatory sanctions.
Regulatory Consultation
Expert guidance on regulatory compliance and reporting requirements.
Regulatory Reporting
Submission of financial and operational data to regulatory authorities for compliance purposes, ensuring transparency, accountability, and adherence to regulatory standards, and maintaining captive's legal authorization and good standing.
Reinsurance Commission
Compensation for arranging reinsurance coverage.
Reinsurance Negotiation
Skillful negotiation of reinsurance terms for favorable arrangements.
Reinsurance Premium
Payment to reinsurers for risk transfer, tailored to captive's risk exposure and coverage needs.
Reinsurance Program
Structure of reinsurance coverage tailored to captive's risk profile and strategic objectives, optimizing risk transfer, and ensuring adequate protection against catastrophic losses, and enhancing captive's capacity and stability.
Reinsurance Recoverables
Amounts due to captive from reinsurers for claims paid on behalf of policyholders, providing liquidity and cash flow support to captive's operations, and ensuring timely claims payments and financial stability.
Reinsurance Search
Analysis and selection of reinsurance partners to optimize risk transfer.
Reinsurance Structure
Arrangement of reinsurance contracts and layers to manage risk exposure and volatility, optimizing risk transfer, and ensuring adequate protection against catastrophic losses, and enhancing captive's financial resilience and stability.
Residual Market
Market for insurance coverage for risks that cannot be readily placed in the standard insurance market, such as high-risk or hard-to-place risks.
Residual Market Facility
Mechanism providing insurance coverage for high-risk or hard-to-place risks, operated by insurers or government entities.
Residual Value Insurance
Coverage protecting against loss of value for tangible assets, such as equipment or property, beyond standard insurance coverage.
Retrocession
Reinsurance of reinsurance, allowing reinsurers to spread their own risks and limit exposure to catastrophic losses.

How can a captive insurance company adapt to emerging risks and market trends?

Captives assess risk profiles, monitor market developments, engage with industry experts, and adjust strategies accordingly. Continuous evaluation and proactive risk management strategies enable captives to mitigate emerging risks and seize market opportunities.
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Annual Premium Increase
Projects yearly premium changes based on actuarial and strategic factors, not static.
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Compliance with IRS and regulatory authorities
Status and compliance assessment
Federal, state, and excise tax and regulatory requirement review.
Review existing contract and make recommendations