Captive

1
Captive

• A Worked Example

This presentation has been produced as a guide to
Captives and does not purport to be complete
without an accompanying report and explanation.
2
Parent Company

• Parent Company is a family owned construction
  Company with Employers Liability and Public
  Liability risk.

EL PL Risk
Work
Ins Risk
Average annual losses are 100,000 (one 250,000
loss 3 years ago). Highest risk, steel erection,
was sold off 2 years ago
3
Insurance History

• Original Premium 215,000

Average annual losses are 100,000 (one 250,000
loss 3 years ago). Highest risk, steel
erection, was sold off 2 years ago
New Quoted Premium 650,000
4
Existing Insurance Result of New Premium

• New Premium 650,000

Significant profits to Insurer on expected claims
5
Alternative Insurance Programme
Parent Company sets up a Captive for first
650,000 of aggregate risk
Parent Company Insures Risks over 650,000
Lloyds Insures Excess Risks
Captive Insures Initial Risks

• A Lloyds Syndicate issues policy to the Parent
  with a 650,000 excess

Captive issues a policy to the parent covering up
to 650,000
6
Alternative Insurance Premium
Parent Company Insures Risks over 650,000
Parent Company sets up a Captive for first
650,000 of aggregate risk
Lloyds Insures Excess Risks
Captive Insures Initial Risks

• Premium is 150,000

Premium is 325,000 (at 50 Risk Exposure)
Total Premium 475,000 Saving 175,000 per annum
7
Captive Costs
Captive capitalised 350,000
Captives exposure 650,000
100,000 paid and 250,000 uncalled. Required to
cover maximum risk insured
Premium 325,000 Reinsurance Premium 150,000
Note The above are gross of taxes Formulae given
to aid alternatives
8
Captive Cash Flow
Captive capitalised 350,000
Captives exposure 650,000
100,000 paid and 250,000 uncalled. Required to
cover maximum risk insured
Premium 325,000 Reinsurance Premium 150,000
Note The above are gross of taxes
9
Conclusion

• Insurance Market Premiums have significantly
  escalated
• Captive insurance should reduce insurance costs
  this can be reflected in lower premiums
• Reinsurance helps to protect the balance sheet
  against large and catastrophic claims