Whether you're thinking about forming a captive insurer, or you're in the process of assessing the quality of the services provided to an existing captive, we know that quantifying the "value added" of the companies which support your captive underwriting effort can be difficult and can be fraught with real problems.
We've assembled a checklist of what you should expect from your service providers and which should provide you with a management tool you can use to gauge what services you need, from whom and what you should pay for them. As you consider the captive feasibility process, or as you consider the captive services you now purchase, we hope you find this checklist useful.
The Captive Manager
- The most important service provider: A reference check is a "must".
- Determine the frequency of the financial reports you will need and the cost difference between monthly and quarterly financial statements.
- Determine appropriate levels of signing authorities on company accounts (particularly important for off-shore captives).
- Be certain that you can be comfortable with the account team, including anyone designated to serve as director or alternate director.
Estimated Annual Fees: $28,000 to $55,000+ (Price will be affected by domicile, frequency of financial reports; additional required services beyond the scope of the agreement; complexity of the underwriting program.
The Local Law Firm
- Determine the relationship the firm has with local regulators.
- Should have an existing, well-developed captive practice.
- Be certain that you can be comfortable with the person designated as a director or alternate.
- Be clear about where the start-up or implementation phase ends and annual corporate secretarial services begin.
Estimated Annual Fees: $3,500 to $10,000+ (Will be determined by the services rendered. Start up costs are frequently in the $8,000 to $15,000 range).
- Assess whether a GAAP statement is really needed.
- Discuss the process with local partner first before retaining the local branch.
Estimated Annual Fees: $9,000 to $15,000.
The Investment Manager
- Discuss any domicile-specific investment requirements/regulations.
- Consider the need to "marry" the investment guidelines/asset allocations to the incurred loss projections in any actuarial pro-formas.
Estimated Annual Fees: Will vary widely; fees usually quoted in "basis points" as a percentage of portfolio holdings.
- Should have domicile-specific experience in all major domiciles.
- Actuarial pro-formas should be updated annually on a 5-year, rolling forward basis.
Estimated Annual Fees: $8,000 to $20,000+ (Will depend upon frequency of updates to pro-formas and loss reserve certifications.
- Check references: A high level of captive experience essential.
- Should be well known to regulators, managers and other support staff in all major domiciles.
- Should be independent: No insurance or reinsurance placements should be undertaken.
Estimated Annual Fees: $15,000 to $35,000
- Should have experience in "reconstructing" insurance portfolios using captives
- Compensation should be fee-based not commission.
- Should be prepared to assist in the claims process as required.
Estimated Annual Fees: (Will vary widely, depending upon the amount of work/number of placements.)
- Your captive's results will only be as good as the service providers you choose.
- Checking references is vital.
- Not all domiciles are created equal: your providers should have experience in all major domiciles.
The Authors: Susan Hughes is Vice President of Aon Healthcare Alliance; Charles Buikema is Assistant Vice President, Risk Management at the Inova Health System Foundation; Michael Maglaras is Principal of Michael Maglaras & Company in Stamford, Connecticut. Their e-mail addresses are:
Susan Hughes: email@example.com
Charles Buikema: firstname.lastname@example.org
Michael Maglaras: email@example.com