For readers of Turning Premiums Into Profits, Appendix B
38 Answers to Get Before You Enter a Captive
The questions to ask the captive before you sign anything.
Get a formal proposal from the captive showing how it performs, how you would have done as a member in prior years, and the financial impact of joining. Then ask questions. Lots of them. Anything that concerns or confuses you, ask that too.
Domicile
- What is the domicile?
- How many captives are formed there?
- How long have there been captives domiciled there?
- What is the political climate of the domicile?
- How often do you need to meet in the domicile?
- Where would meetings need to occur?
Captive management
- Who are the service providers?
- What is their experience?
- Are you able to meet with them?
- How often do you receive financials?
Group captive
- How many years in existence?
- How many members?
- Who controls selection of the members?
- Can you see the financials of the captive?
- Can you see the financials of the other members?
Risk sharing
- How is risk shared between members?
- How much are you responsible for of your own claims before the other members assist?
- How is the shared risk calculated?
Captive in general
- What is the expense structure?
- What are the per claim and aggregate retention levels before reinsurance comes into play?
- What is the process to close out program years?
- What is my maximum assessment for a poor performing year?
Collateral
- How are the collateral requirements calculated?
- How long would you have to have collateral posted?
- How many years may have to stack up?
831(b)
- Who performs the feasibility study?
- Who does the actuarial analysis?
- What is the structure of the captive?
- How is risk pooled or shared?
- How is policy premium adequacy determined?
- Has your captive been reviewed by the IRS in the past?
Group healthcare captive
- What are the collateral requirements?
- Are additional premiums possible due to poor performance?
- What is the claim runoff period?
- How and when are dividends calculated and paid?
Expenses
- What are the expenses to form the captive?
- What are the additional costs to join the captive?
- What ongoing expenses beyond premium payments may be incurred?