Viability of a Captive

In assessing the viability of a Captive insurance company as a valid cost and an efficient risk management tool a feasibility study should be performed.

The feasibility study should provide an executive overview of the most important aspects of a captive and would include, at a minimum an assessment of the following:

Document the Captive's Business Strategy

The captive feasibility study will begin by clearly documenting the business purpose for creating the captive insurance company

Assessment of risk appetite

The feasibility study will assess the organisation’s risk appetite in order to determine an acceptable level of the retained risk. Areas related to resource allocation, implementation of strategies, time constraints, maximum exposures and loss history will be addressed in order to identify an adequate level of risk retention.

Identification of the Lines, Limits, Rules, Rates and Policy Forms the Captive will use

A study has to be carried out in order to identify specific property and casualty risks, whether already insured or not, that can be transferred under the captive. Coverage limits, premium rates and policy wordings have to be determined for the captive to underwrite.

Reinsurance Needs

Reinsurance agreements which the captive will utilise in all of its reinsurance transactions have to be analysed. A list of qualified reinsurers who can meet all reinsurance needs at an affordable cost would be drawn up at this stage.

A Multi-Year Cost Benefit Analysis

This analysis will compare the economics associated with forming a captive insurance company to the economics associated with not forming a captive. The cost benefit analysis will compare these two scenarios over a 1, 5, 10, 15 and 25 year time frame.

Captive Insurance Tax Analysis

An analysis of the new structure in line with the Group’s current tax planning/structure would also be carried out.


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