Captive Insurance Overview What is a Captive? Property & - PowerPoint PPT Presentation

Captive Insurance Overview

What is a Captive? • Property & Casualty Insurance Company • Formed to cover the unique risks of an operating company • Provides coverage for specialized risks which may not be available or may be too costly to obtain through traditional insurance providers • A bona fide insurance company, subject to approval and regulatory oversight by the insurance regulators in a chosen domicile 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 2

Insurable Risks That May Result in Loss of Business Income • Loss of Franchise • Business Interruption • Loss of Key Employee • Contract Penalty and Failure • Loss of Licensure to Perform on Contract • Deductible Reimbursement • Legislative and Regulatory Changes • Defense Cost • Reputational Risk Reimbursement • Difference in Conditions • Suppliers/Supply Chain Interruption 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 3

History of Captives Fred Reiss forms first 831(b) Captives PATH Act captive in Cleveland, Effective no longer a Ohio for the January 1, Tooley listed Youngstown Sheet 2017 Street Fire transaction and Tube Company 2004 2014 1920s 1957 Today 2002 1861 Over 50% of Large IRS Issues Safe domestic corporations Harbor Rulings domiciles offer begin forming specialized wholly owned captive statutes insurance companies 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 4

Basic Captive Structure 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 5

Middle Market Captive Opportunities There are multiple cost-efficient platforms available that can help the small to mid-size client effectively manage their Enterprise Risk exposures. • 831 (b) Captive • Share Class Captive • Group Captive 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 6

How to Build a Conservative Captive • Design with risk management as the primary focus • Adhere to IRS Revenue Rulings and all available guidance • Assure that the captive is operated as a bona fide property & casualty insurance company • Underwrite policies that offer meaningful coverage at appropriate premium levels • Avoid structures that are “too good to be true” in order to generate predictable results 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 7

How Does it Work? Insurance Premium Oxford Operating Fronting Company Carrier Insurance Policy Reinsurance Premium Underwriting Profit * New Captive of Oxford Insurance Company Captive Flexible Ownership Owner Options *After Claims less Expenses 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 8

Exposure to Claims $1,000,000 Claim from Oxford Insured Captive $1,000,000 which filed Claim the Claim Oxford Fronting Carrier All Other Your $6,000 Captives Captive Share Risk on a Quota Share Basis Assumptions: • Your Captive Premium is $750,000 • Total Written Premium = $100MM • Your Quota Share of Claim Pool = 0.0075 • Your Captive is Responsible for $6,000 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 9

Oxford Structures Oxford Insurance Oxford Stand Alone Share Oxford Class B Oxford Share Fronting Class A Series Carrier Share Share Operating Class C Class D Company 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 10

IRS Scrutiny of Abusive Structures • • Not Following the Safe Harbor Tax Opinion Written by an Guidelines Interested Party • • No Real Distribution of Risk Insuring Unreasonable Risks • • No Claims Experience or Claims Paying Excessive Premium for your Layering Coverage • Treating Captive Assets as a • High Deductible Risk Pools or Personal Checkbook Retroactive Policy Issuance • Circular Transactions • Lack of Business Purpose • Investment Plans that Don’t Make • Implementing a Captive to Obtain Sense Tax Deductible Life Insurance 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 11

Captive Implementation Process Complete Application to Initial Feasibility Insurance Consultation Regulators Study Informal Risk Analysis, Feasibility Underwriting and Approval Process Compliance Analysis Engagement Domicile Selection Closing Procedure Process 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 12

Captive Advisory Group Captive Manager Actuarial Legal Counsel Firm P&C Agent Audit and Risk Analysis Firm Firm Tax Financial Counsel Advisor 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 13

Third Party Review and Analysis Independent Third Party Risk Analysis •  Coverage Chart  Gap Identification  Total Cost of Risk (TCOR) Analysis  Enterprise Risk Exposure Review Risk Selection •  Identify Relevant Coverage  Avoid Duplicate Coverage Independent Third Party Actuarial Analysis •  Rate Promulgation  Peer Review of Pricing Methodology  Feasibility Study 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 14

Underwriting Assemble Current Insurance Information •  Review Current Policies and Endorsements  Analyze Five Year Loss Runs  Three Year Summary of Coverage  Identify Trends in Premium History Underwriting •  Understanding the operating company  Discuss reasonable coverage applicable to industry and unique business  Identify Self-Insured Exposures  Identify Uninsured Loss Experience Adequacy of Policy Limits • 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 15

Client Profile • Annual Revenue $3MM+ • Across All Industries: – Agriculture – Automobile • Enterprise Risk Exposure – Construction – Entertainment/Professional • Willing to invest time to Athlete explore risk management – Medical solutions – Real Estate – IT – Oil Drilling • Sophisticated business – Manufacturing owner 954 Ridgebrook Road │ Suite 100 │ Sparks , Maryland 21152 │ 410.472.6490 T . │ 410.472.6496 F . │ www.OxfordRMG.com 16