Transcript Document
REACHING YOUR GOALS WITH A CAPTIVE Today‘s Speakers Panelist and Moderator Mike Meehan, CIC, CRM Consultant – Milliman, Inc. Panelists: Anne Marie Towle, CPA Senior Consultant – Willis Global Captive Practice Ira Richterman, MD Chairman – Starkap Agenda • Evolution of a Group Captive • Actuarial Feasibility Study – Necessary Data • Case Study – The Starkap Family (How the “Family” was created) Anne Marie Towle, CPA Willis Global Captive Practice Senior Consultant Evolution of a Group Captive Methods of Managing Risk Conventional Insurance Non-Insure Risk Management Retain Predictable Losses Transfer All Losses Retain All Losses Transfer Catastrophic Losses Evolution of a Group Captive Develop Business Case Challenges & Recommendations Conduct Feasibility Study Manage Concerns & Feedback Select Business Partners Grow Participation & Commitment Developing the Business Case Sample Group Captive Risk Layering Model Many types of insurances could be shared in a group captive platform: WC G/L A/L P/L Etc… Legal & Financial Considerations Joining the Family Grow Participation and Commitment Build credibility and trust within group Influence: turn advocates into promoters and leaders Stress importance of loss control and long term view Reiterate benefits: premium cost reductions, greater control, escape cycles Reinforce cohesive elements of group Bring in service providers to talk about areas of expertise Realize it’s a financial decision and an organizational change process Follow up, but be patient and allow them to assess information Selecting Business Partners Service Providers During feasibility study begin to meet and conduct due diligence Fronting and Reinsurance Carriers Captive Consultant/Manager Legal Counsel Actuary Audit and Tax Advisors TPA Meet regulators and visit appropriate domiciles Banking and Investment Advisors What to Look For Willing to partner with a number of companies with individualized needs Experience collaborating with all service providers to create value Ability to simplify and explain complex information Technology and service that fits your needs How to Work with Providers Issue RFPs and understand key selection criteria Be instructive about service requirements and deliverables Managing Concerns & Feedback Financial Impact to Their Organization Working Together Capitalization and Prefunding Collateral, Dividends, Investment Income Sharing of sensitive information Sharing Risk Captive Operations & Governance Service Providers Being Replaced? Bankruptcy Potential Assessments & Protections within Structure Risk Appetite Loss Control & Compliance among companies Different reporting requirements and risk management practices One TPA? Voting and Control of Captive Decisions Entry: Underwriting Guidelines Exit: Prohibitions to Leaving the Captive Mike Meehan, CIC, CRM Milliiman, Inc. Consultant Actuarial Feasibility Analysis • • • • Why is a feasibility study necessary? What data do you need to complete the analysis? What should you expect to get out of the analysis? What are my ongoing actuarial needs? Why is a Feasibility Study Necessary? • Forms the basis for measuring the financial viability of the proposed captive • Helps to identify potential advantages and the potential risks • Likely required for licensing/application process • May be required for presenting to the reinsurance market What Data Do You Need to Complete the Analysis? • Basic information – Company specific • Goals, constraints – Operational • Account background • Management (claims, risk management) • Loss Information – Historical • Claim runs, large loss listings (i.e. outliers) • Exposures – Historical and prospective • Payroll, vehicles, sales, etc.) • Descriptions/locations What Data Do You Need to Complete the Analysis? • Expense information – Vary by type of program, domicile • Other Assumptions – – – – – – Growth Rate of return on investments Payout patterns Capitalization Taxes Adverse scenario • Challenges – Single entity vs. group program What Should You Expect to Get Out of the Analysis? • Loss analysis – – – – Review of past loss experience Actuarial adjustments Consideration of internal factors (i.e. loss control) Consideration of external factors (i.e. laws/benefit levels) • Loss forecast / loss rate – For first year of captive – Confidence levels (adverse scenario) • Pro forma financial statements – – – – – Typically five year Based on expected and adverse scenarios Based on expense assumptions, domicile Payout patterns Surplus and capital contributions What Should You Expect to Get Out of the Analysis? • Evaluation of Results – – – – Adequacy of capital Adequacy of reserves (for LPT) Adequacy of premium Minimum number of participants • Solvency Measurements – Premium to surplus – Reserves to surplus • “Decision Time” What Are Ongoing Actuarial Needs? • Annual loss reserve opinion • Change in business plan – New coverage analysis – Loss layers / reinsurance analysis • Updated premium projections • Capital analysis • Cost allocation / dividend analysis – Especially Important for group program Ira Richterman, MD Starkap Chairman Why Do We Want to Date? • Escalating malpractice premiums – $22k to $103k per year without incident • Lack of control of expenses • Ignorance towards risk management • Non-active role in legal matters – 180 day letters thru legal suit Who Do We Want to Date? • Known physicians – Personalities – Practice management – record keeping and communication skills • Geographic location of practice – Re-insurer would not underwrite Cuyahoga County – Single county company • Control vs limited size (premium) Courtship • Beginning to develop consultation team – Risk manager – Captive manager • Feasibility study – an evaluation of cost • Hospital Acceptance – Requirement of A-rated company Permission From Your Future Father-In-Law • Physician education – – – – Coverage limits and asset protection Start-up expenses Competitive brokers This is not an investment vehicle • Obtaining Reinsurance The Wedding • Who’s in & who’s out? • Can we still get married? • The wedding license – A solid long-term business plan (conservative) – Listen to your consultants A Child is Born • Where is the instruction manual? • It speaks a different language • Sleepless nights Childhood • Continued education and understanding – Monthly meetings – IMAC attendance – Marathon board meetings Bumps and Bruises • One large rainstorm • Loss of captive manager company – Follow our leader to a new company • Changing consultants as the company grows – Local insurance consultant to worldwide company – Single risk manager to larger national firm • Individual vs. The Company – Investment troubles – the tale of the audited financial statement – Our auditor is just too big - $$$ Adolescence • Defending our first suit – its not cheap • How to grow in the “longest” soft market – Premiums higher than commercial – “Don’t worry the market will get hard again – its cyclical” – Need to increase reserves – The local agent – pressure from the golf course • The breakup of your first love – Losing a founding member • Are we still big enough? • What information to share in the future? • So, do we want another relationship? Adulthood • Other relationships – Expanding insurance coverage • • • • Health Workers’ Compensation P&C Short term disability – CIE – Continuing Insurance Education • Continuously changing rules and regulations • New President?