What do I do now that I have a captive? (A practical guide to running your captive)

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What do I do now that I have a captive?(A
practical guide to running your captive)
Moderator Paul Bailie
Panel Drew Talley
P. Bruce Wright
Karl Zimmel
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Topics for discussion

• Building the captive team
• Business operations and development
• Monitoring effectiveness.

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Building the captive team

• Who should be on the team?
• Familiarizing the team with captive operations
  and objectives
• Selecting the Board of Directors
• Authorization criteria
• Lines of communication
• Deadlines and calendar
• Captive peer groups.

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Who should be on the team?
Internal
External
Risk Management
Captive Manager
Accounting
Audit
Treasury
Actuarial
Captive
Tax
Brokers
Legal
Fronting Cos.
Executive
Claims/TPAs
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Familiarizing the team

• Basic Captive 101 training
• Insurance company accounting
• Communicating the captives business plan and
  objectives.

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Selecting the Board of Directors

• Major team components to be represented?
• Should the Risk Manager be a director?
• Outside directors
• Executive representation.

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Authorization criteria

• Who has ultimate responsibility?
• Signing authorities for entering contracts
  (policies)
• Delegation to committees
• Other authorizations
• Bank signatories
• Audited accounts and statutory returns
• Claims settlement.

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Lines of communication

• Clearly define responsibilities and information
  flows
• When does executive management need to be
  informed?
• Team chart with contact details.

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Deadlines and calendar

• Reporting deadlines
• Renewals
• Board meetings

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Captive peer groups

• RIMS
• Industry groups (e.g. Drug Insurance Group)
• The Bermuda Club
• Others?

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Business operations development

• Maintaining the business plan
• Set and understand the captives goals
• Identify business development opportunities
• Underwriting philosophy and methodology
• Actuarial analysis.

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Business operations development

• Investment policy and loans to the parent
• Managing collateral requirements
• Dividend policy
• Captive administrative costs
• Forecasting and budgeting.

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Monitoring effectiveness

• Measuring financial performance against targets
• Can you measure indirect benefits?
• Do the parents objectives match the captives?
• How does the captive impact total cost of risk?

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Monitoring effectiveness

• What if things arent working out?
• Identifying causes of failure
• Restructuring to ensure success
• In worst case what is the exit strategy?

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Causes of failure

• Lack of commitment and/or understanding
  internally
• Poor underwriting
• Bad investments
• Market changes
• Bad luck!

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Restructuring

• Revision of business plan
• Refocus on the core objectives
• Capital injection
• Better underwriting analytical emphasis
• Use all available team resources.

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Exit strategy

• Dont underestimate the potential problems of
  run-off
• Consider exit strategy at time of formation, not
  when its too late
• Good planning can greatly reduce time and cost.