Maximizing Captive Value Through Teamwork

Maximizing Captive Value Through Teamwork

Speakers:

• Irena Kaler, Executive Director/CAO, RWJ Health Network Insurance Services

• Ken Rand, Managing Director, Marsh Inc.

• Catherine Sheridan, Partner, Tax, KPMG

• Chris Kogut, Principal and Consulting Actuary, Milliman

Moderator:

• Lawrence Bird, Managing Director, Marsh Bermuda

Overview

• Many resources are involved in establishing, managing and developing a captive.

• This discussion aims to show how the value of these divergent resources can be reaped to produce a powerful and efficient team to move your captive forward.

• We will show how to maximize captive value through teamwork.

How Does A Captive Start?

• There are many reasons to consider establishing a captive

• The team involved initially may include:

- captive owner/parent company

- captive consultant

- insurance broker

- reinsurance broker

- actuary

- tax consultant

- finance and accounting

- legal advice

How Does A Captive Start?

Once the decision is made to proceed and the domicile is selected, the following might be involved to incorporate the captive:

• captive owner/parent company

• captive manager

• lawyers

• regulators

How Does A Captive Grow?

• Once incorporated and underwriting the planned business there will almost always be a need for ongoing development.

• For this to occur, the following resources might be used:

- captive owner

- captive manager

- actuary

- insurance broker

- reinsurance broker

- tax consultant

- legal counsel

- investment manager

- regulator

Why Is Ongoing Development Important?

• Opportunities need to be identified for the benefit of the captive and its owners.

• Without teamwork and proper consultation, opportunities will be missed instead of being maximized:

- insurance markets change

- regulations change

- laws change

- risks change

- investment markets change eg. fixed income and equity markets

- changes in captive owner’s business, operations or corporate structure

Who Makes Up The Team?

Captive

(Re)insuranceBrokers

Captive Manager

Regulators

Officers and Committees

Board of Directors

Investment Manager

Lawyers/ Corporate

SecretariesBanks/

Treasury

Captive Owner

Actuary

Auditors

TPAs/Claims Handlers

Fronting Companies

Tax consultant

How Are The Roles Linked?

Tax Consultant

Captive Manager

Actuary

STRATEGY

Captive Owner

(Re)insuranceBroker

RISKS

What Are Their Roles?

• Captive owner – share objectives with the team

• Everyone else – understand those objectives and partner with the captive owner and each other to achieve those objectives and more

- captive owner

- captive manager

- insurance broker

- actuary

- tax consultant

The Captive Owner’s Role on the Team

• Keep the team informed – begins with the vision for the captive– changes, needs, challenges facing primary business– create understanding and alliances with on-shore, in-house

advisors

• Create relationships– select vendors and consultants wisely– understand the contributions of each team member– know what you don’t know – ask the experts

• Utilize the Board’s talents– keep the Board informed– leverage their talents, expertise, knowledge in strategic

ways

The Captive Owner’s Role on the Team

• Stay involved– regular contact with captive manager and “key” advisors– expectations met? Deliverables timely?– ask questions; exercise oversight– are you getting what you pay for? Is the captive “working”

to advance your primary business needs?

• Don’t be an absentee landlord!

The (Re)insurance Broker’s Role on the Team

The (Re)insurance Broker’s Role on the Team

• Analyze exposures of insured/policyholder

• Provide placement services in the commercial (re)insurance market– Identify markets– Negotiate terms and conditions– Present to insured / policyholder

• Advise on market capacity and conditions

• Communicate developments in the industry

• Provide policy reviews

• Provide client contract reviews (insurance requirements)

The (Re)insurance Broker’s Role on the Team

• Provide claims handling and settlement services

• Provide claims reporting services

• Assist in market collections

• Identify alternative forms of capital financing

• Provide placement services for fronted (re)insurance arrangements

• Contract certainty

• Credit security of (re)insurers

The Actuary’s Role on the Team

• Provide the “numbers” to make informed decisions

• Explain the risks and risk factors in insurance programs

• Highlight the uncertainty in future events

• Assist the captive board, owners and regulators in evaluating the captive’s solvency

• Protect insured/policyholder

• Communicate developments in the industry

Examples of Actuarial Involvement

• Reserve analysis and statement of actuarial opinion

• Funding/premium projections

• Retention analysis

• Strategic financial planning

• Claims management reviews

• Risk transfer opinion

• Premium allocation

• Capital adequacy reviews

The Tax Consultant’s Role on the Team

• Strongly recommend tax advisor be included in the Due Diligence Process

• Tax Advice needed PRIOR to establishing the Captive

• Planning needed to obtain tax objectives/efficiencies

– U.S federal income tax implications/structuring

– International tax implications/structuring

Examples of Tax Issues

• Withholding taxes

• Excise taxes- Direct/Reinsurance- Cascading

• State income/premium/procurement taxes

• Cell legislation

• Tax Compliance Reporting, including - Informational returns- FBAR

The Captive Manager’s Role on the Team

• Understand the captive owner’s objectives, business and corporate structure

• Ensure basic management services are provided

• Provide relevant expertise especially financial management and insurance

• Compliance with regulations

• Regulatory updates and developments

• New opportunities and developments; the manager must be up-to-date and, also, provide innovative ideas

• Co-ordination of the team

Which Roles Are Generally A Requirement For Success?

• Captive owner

• Board of directors

• Captive manager

• Insurance broker

• Actuary

• Tax consultant

• Corporate secretaries

• Auditors

• Third party administrators

Who Has Responsibility?

• Everyone has responsibility for their specific areas, but should not operate in silos

• Communication is always key

• Understand the captive owner’s business, needs and objectives to contribute maximum value

• Survey the landscape – opportunities, changes in legal and regulatory environment etc.

• Captive manager is the gate-keeper to maximum success through co-ordination and team facilitation

• Captive owner is the end point. Is your captive a strategic asset or a headache? You insure success.