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Implementation of a Captive

Establishing a captive requires a long term commitment by the parent organization. The decision to implement such an alternative risk funding program should be made with a long range view of the goals and objectives. This strategic perspective allows the organization to consolidate and manage its risk financing program, stabilize its overall risk management portfolio and create a risk funding program that is less vulnerable to the price fluctuations and market restrictions that are inherent in the commercial insurance market.

It is vitally important that the captive be well planned, for it involves the creation of a facility that must meet risk financing needs both today and in the future. In British Columbia, the goal is to provide captive insurance companies with all of the services and support necessary to make the facility an integral component of a successful risk management program.

If you have decided that the formation of a captive facility might be right for your organization:

1. Discuss the subject with your current insurance broker and meet those responsible for the management of the captives of their other clients. If the broker does not have a captive management capability, talk with either another broker who has or an independent consultant who specializes in advising clients about the benefits of establishing a captive.

2. Meet with the British Columbia regulatory authorities.

3. Have a captive manager or independent consultant perform a feasibility study. The study can range from a brief analysis to a full length study. Included in the study should be an actuarially determined loss projection, a domicile comparison and a financial analysis. As part of the study, identify the legal, tax and accounting issues that need to be addressed by appropriate advisers.

4. Analyze the study and resolve any outstanding issues.

5. Prepare a business plan for the captive.

6. Incorporate a British Columbia company and prepare the necessary captive application forms.

7. Market any insurance or reinsurance for the captive.