August 05, 2014
From John Salisbury, President

A.M. Best's may have information on domestic insurers that fail. However, I am not aware of anyone who maintains statistics on captives that fail.

Captives, like traditional commercial insurers, are subject to regulation where they are domiciled. The fact is that captives cannot write insurance in any state in the U.S. unless they are admitted in that state or are fronted by a licensed commercial insurer who is admitted in that state. If they are fronted by a licensed commercial insurer, that commercial insurer is responsible for claims payment even if the captive becomes insolvent. This is one level of protection for the insured(s). The exception to the licensing of captives is risk retention groups which must be licensed in a domiciliary state where they are subject to regulation and only need to register in other states where they do business. A risk retention group is really a group captive and can only write liability insurance. Believe me, the companies/organizations that join group captives do not want to see them become insolvent. What they want is to have all legitimate claims paid and to receive the higher and more focused levels of service that are usually provided by this type of facility.

I am aware there have been several risk retention groups that regulators have ordered to stop writing coverage to assure that all claims can be paid. One cause for becoming financially troubled has been the soft insurance market that attracted some of group captive member/insureds away.

During my experience in the captive industry since 1984, I know of no instance in which the savings device that captives employ is avoiding paying claims through insolvency. To the contrary. Savings come in a variety of ways: lower costs of administration, industry specific loss prevention services, investment income from claims reserves and capitalization, etc.