Business Plan - University of California | Office of The President
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Transcript Business Plan - University of California | Office of The President
University Of California
CAPTIVE 101
Risk Summit 2014
Captive Primer
What is a Captive?
A limited purpose, licensed insurance company, the main business purpose of which is to insure the risks of the
captive’s owners
A risk assumption vehicle
An insurance or reinsurance company
Specifically established to insure or reinsure the risks of its parent or associated third parties
Captive 101 UC Risk Summit 2014 | 1
Captive Primer
Risk Financing Continuum
HIGH
Self-Insured Trust
• Complete assumption of risk with limited
regulation
Single Parent Captive
• Complete assumption of risk
• Subject to Regulatory Oversight
Group Captive
• Pooling of Risk with Participants subject
to Corporate Governance
Deductible Policy
• Significant/complete risk assumption in exchange
for deductible credit
Retro Policy
• Assumption of limited risk in exchange for potential return premium
• Deferred “pay-in” premium
Guaranteed Cost
• Complete transfer of risk
• Commercial insurance with no deductible
LOW
HIGH
Financial Control
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Captive Primer
Factors Driving Captive Growth
The unwillingness/inability of insurers to provide cost effective insurance
The need for new capacity for certain risks
The drive control to frictional and non-loss costs
Lack of confidence in the traditional markets ability to differentiate and provide stable protection
The enhanced focus on loss prevention and intelligent claims handling
The opportunity to take risk and profit positions in affiliate business
The opportunity to see favorable risk management, wealth and tax outcomes
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Captive Primer
Types of Captive Utilization
RETAINED RISK FINANCE
Infrastructure for
providing
transparency,
validation, and
rationalization of
retained risk
positions
Enhancing risk
management efforts
Mutualizing risks
across portfolios
RISK TRANSFER ARBITRAGE
Reinsurance market
cost of risk transfer
is less than
commercial retail
cost of risk transfer
Better use of capital
to retain risk than
transfer it
Managing total cost
of risk
THIRD PARTY BUSINESS
ACCESS TO CAPACITY
Federal programs
(TRIA)
Franchisee
programs
Reinsurance
capacity, which may
not be otherwise
accessible in
commercial retail
market (trade credit
risk, +10 yr
pollutions risks)
Consumer facing
insurance programs
(warranty, service
contract, point of
sale insurances, etc)
Affiliate business
(vendors, VAPs,
distributors, etc)
Agency captives
3rd party business
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Captive Primer
Captive Utilization and Lines Of Business
Certain lines of
business lend
themselves
more naturally
to certain
utilization
models
Line of
Business
Utilization
Model
WC, AL, GL, EPLI,
Governance, financial
Property, APD
Uninsured Risks
Rationale
Retained Risk Finance
ERISA Benefits
optimization, and cost
reduction of retained
risk positions
Value
Proposition
Reduced loss costs
thru visibility and
alignment
Accelerated tax
deductions
Self-Insured Medical,
STD, LTD, Exec. Life
WC, AL, GL, EPLI,
Property, APD,
Products Liability,
Professional Liability
Sharing risk provides
Group Captive or
Pooling
Medical Stop Loss
Products Liability,
Professional Liability,
Environmental
Liability, E&O,
Terrorism, Trade
Credit, Cyber
for greater retention
capacity
Gain control of
insurance framework,
costs, services and
profits
Capacity and Rate
Arbitrage
A captive facilitates
trading in the
insurance marketplace
as an insider
Reduce cost of risk
Access profitability of
insurance program
Gain control of
infrastructure
Access to broader,
more competitive
capacity
Ability to take out any
commercial capacity
which is driving rate
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Fiat Lux Risk and Insurance Company
Why did UC form Fiat Lux?
Help manage volatility in retained risk positions between silo’d trust infrastructure
Provide coverage to stakeholders who don’t fit in self-insured trust mechanisms
Support enterprise risk management efforts by building mutually beneficial insurance
infrastructures for various stakeholders
Reduce cost of risk
Capitalize on enterprise risk management expertise
Support development of revenue generating insurance activities
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Captive Primer
Domicile Decision Factors
Capitalization and surplus requirements
Receptiveness of regulatory environment
Quality of local infrastructure
Availability of expertise
Stability of regulatory environment
Flexibility as respects investment portfolio
Ease of doing business – in a suitably regulated environment
Experience in business under consideration
Efficient financial outcomes: tax, investment etc.
Availability of relevant corporate structural options
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Captive Primer
Domicile Options
Onshore: (over 35 States!)
Offshore:
Vermont
Bermuda
Hawaii
Cayman Islands
District of Columbia
Barbados
South Carolina
Ireland
New York
Malta
Delaware
Channel Islands (Guernsey/Jersey)
Arizona
Gibraltar
Tennessee
Isle of Man
Nevada
Luxemburg
Utah
British Virgin Islands
Montana
Turks & Caicos
Puerto Rico
U.S. Virgin Islands
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Fiat Lux Risk and Insurance Company
Why did we domicile the captive in Washington DC?
California does not have captive enabling legislation… so we could not form it here
Washington DC has a very progressive captive law, allowing for the degree of structural and operational
flexibility we need in order to build a scalable captive o meet strategic needs
Washington DC allows for segregated captive facilities, which will assist in building diverse portfolios of
insurance business with differentiated insurance company partners and managing tax outcomes at the captive
and shareholder level
Washington DC provides for the corporate from we needed in order to have a captive and comply with CA
securities and insurance law
UC has a campus in DC – UCDC – leadership already has a purpose for visiting
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Fiat Lux Risk and Insurance Company
How is Fiat Lux governed? What service providers does it use and why?
Board of Directors
Meets 3-4 times a year
Comprised of:
University President
University CFO
University CRO
University General Counsel
Outside directors
Captive Manager – Willis
Actuary - Bickmore
Auditor - PWC
Attorney – McDermott Will and Emory
Consultant – Willis
Reinsurance Brokers – various
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Fiat Lux Recap
Utilization Plans for UC Fiat Lux – Phase 1
RETAINED RISK FINANCE
Workers
Compensation
Auto Liability
General Liability
Professional
Liability
Employment
Practices Liability
RISK TRANSFER ARBITRAGE
ACCESS TO CAPACITY
Property Terrorism
Casualty Terrorism
THIRD PARTY BUSINESS
Small Vendor
Program
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Fiat Lux Recap
Utilization Pans for UC Fiat Lux – Phase 2
RETAINED RISK FINANCE
Workers
Compensation
Auto Liability
General Liability
Professional Liability
Employment Practices
Liability
Threat & Security
RISK TRANSFER ARBITRAGE
ACCESS TO CAPACITY
HPL
Property Terrorism
Provider Stop Loss
for Health Systems
Casualty Terrorism
THIRD PARTY BUSINESS
Small Vendor
Program
Student Tenant /
Gadget insurance
Affiliate Physician
Med Mal insurance
Program
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Fiat Lux Risk and Insurance Company
The Big Picture – Phase One
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Fiat Lux Risk and Insurance Company
What’s on the horizon for Fiat Lux?
Student insurances:
Tenant / Gadget on-campus,
Tenant / Gadget off-campus
Health Systems:
Affiliated physician insurance programs (several target portfolios);
Provider Stop Loss
Conversion of HPL into captive with reinsurance program
General Liability & Property
Weird Coverage
Threat & Security
Commercialization of ERM expertise
Affinity programs serving several communities
Roll out of commercial programs to other systems (CSU, SUNY etc)
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Fiat Lux Risk and Insurance Company
The Bigger Picture
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Fiat Lux Risk and Insurance Company
Questions?
Q&A
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