ABC s of Captives ART

1. ABC’s of Captives & ART

2. What is a Captive Captives are truly “Special Purpose Insurance Companies.” They are created primarily to serve a single corporation (or corporate family), members of an association, homogenous groups, an insurance agent’s/broker’s, TPA’s or MGU’s controlled book of business. The captive’s owner(s) dictate its underwriting, risk management and investment policies.

3. What is a Segregated Cell Captive Segregated cell captives may be owned by insurance companies, associations, insurance agents/brokers, holding companies, etc., etc., etc. Segregated cell captives are protected. The term “protected cell” applies to separate insured risks or lines of coverage that are segregated (protected) from other insured risk exposures and liabilities. Protected cell design structures are flexible in make-up. As examples, they may be made up of single insureds, controlled books of business, homogenous groups or by line of coverage.

4. What is an RRG A risk retention group (RRG) is a liability insurance company that is owned by its’ insureds. Under the Liability Risk Retention Act (LRRA), RRGs must be domiciled in a single state. (may NOT be domiciled offshore) Once licensed by its state of domicile, an RRG can insure qualified risk(s) in all states. Because LRRA is a federal law, it pre-empts state regulation, making it much easier for RRGs to operate nationally. As insurance companies, RRGs retain risk.

5. What is an RRG Avoidance of multiple state filings and licensing requirements. Insured controlled pre and post loss management program. Establishment of stable market for coverage and rates. Elimination of market residuals. Exemption from countersignature laws for agents/brokers. No expense for fronting fees. Unbundling of services.

6. Why Form a Captive/RRG Provide alternative risk transfer/funding mechanism. Smooth out insurance cost volatility. Control coverage design, and risk retention. Benefit from proactive risk management program. Provide coverages not otherwise available.

7. Why Form a Captive/RRG Gain access to reinsurance market. May enhance strategic partnership opportunities. Capture underwriting profit and investment income. Creative financial tool. Long-term fluid investment.

8. What Coverages Medical Malpractice General Liability Auto Liability & Physical Damage Workers’ Compensation Environmental Liability Professional Liability Property Medical Stop Loss Short & Long Term Disability Employee Group Medical Benefits Coverages not otherwise available

9. What Coverages These coverages in “most cases” may be reinsured to a captive whether the front is a traditional insurance company or an RRG.

10. What is a Fronting Company A fronting company retains responsibility for the captive’s regulatory and statutory compliance, which includes the ultimate financial responsibility for all coverages reinsured to the captive.

11. ART’s Versatility For example, two models: Single Parent Captive State Medical Community

12. Single Parent Captive

13. Single Parent Captive Deductible buy back program for casualty lines: General Liability Auto Liability Workers Compensation Front underwrites and issues coverages’ policies on a fully insured basis Front enters into a reinsurance agreement wherein the captive guarantees to reimburse the front for the program’s negotiated deductible.

15. Medical Society & Hospital

16. Program’s Coverages Medical Malpractice Tail Liability coverage $1 million / $1 million Medical Malpractice Liability coverage $1 million / $3 million Miscellaneous Professional Liability coverage $1 million / $3 million General Liability coverage (optional) $1 million / $3 million

17. What is Involved Step 1 Gather underwriting information. Incorporate received underwriting information into a financial model to determine proposed captive’s financial viability. Agree whether proposed captive is a “go” or “no go” proposition.

18. What is Involved Step 2 An actuarial firm engaged to provide financial models that will include suggested retention limits and capitalization requirements. Identify and begin dialogue with qualified underwriting partners. Team members will develop captive’s business plan, which will include marketing and financial sections. Orchestrate a meeting with selected domicile’s regulators and Department of Labor if appropriate (employee benefits only).

19. What is Involved Step 3 Incorporate and capitalize captive and/or RRG. Complete and file captive’s and/or RRGs license application with chosen domicile’s insurance department for approval. Contract with a captive management company for ongoing mind and management services.

20. What is Involved Step 4 “Roll out” program.

21. ART The World of Imagination Creativity Long-Term Partnerships Control

22. Richard (Dick) C. Goff The Taft Companies 901 Dulaney Valley Rd, Suite 610 Towson, MD 21204 Phone: (800) 899-1399 E-mail: Dick@Taftcos.com Web: www. Taftcos.com