Pro forma financials are a significant part of the captive formation process and provide an assessment of the expected financial results for the proposed captive insurance company, according to Billy Onion, associate actuary at Milliman.

They are typically prepared on a gap basis and generally include a balance sheet and income statement, a statement of cash flows, and other financial schedules to evaluate the expected performance for the captive.

Pro forma financials are based around some key assumptions, including initial capital, expected premium, loss ratios, investment returns, and expenses. Among other things, the pro forma financials project future expected income and surplus levels for the proposed captive.

Whether the audience is internal management or regulators, pro forma financials are a great tool for captives.