Arizona Captive Insurance Programs

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Arizona Captive Insurance Programs
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What Is A Captive?

• Captives are a form of self-insurance that are
  granted, by law, many of the rights and
  privileges of a traditional insurance company.
• Most are formed to insure the risks of the
  entities that formed them.
• They can be formed by companies and corporations,
  insurance companies or agencies, associations or
  groups (e.g. contractors, doctors, nursing homes,
  hospitals).

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Types of Captives

• Pure Owners insure only themselves, affiliates
  /or controlled but unaffiliated.
• Group An association or group (doctors,
  contractors, etc.) band together to insure each
  other share costs.
• Protected Cell Rents out their license to
  various entities but isolates (no pooling)
  results expenses for each entity.

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Types of Captives

• Risk Retention Group a corporation or limited
  liability association that spreads risk and
  results among members. All members must be
  insureds and all insureds must be members.
  Licensed in one state but allowed to operate in
  all. Insures only liability coverages.
• Agency an insurance agency develops a unique
  program for their customers only.

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Captives-Now Commonplace

• Today about 5500 captives world wide. Over half
  have US parents.
• More than half of the Fortune 500 have captives
  but at least one-third are SMEs.
• Premiums now amount to more than half of all US
  Commercial PC premiums.
• 355 New Captives in 2004 with 102 Billion in
  premium-up 17 B from 2003.

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Features Benefits

• You should consider a captive
• If your own company is more stable than your
  insurance company.
• If traditional insurance is unresponsive or
  inconstant in meeting your needs.
• You own it, design it control it.
• No longer subject to unpredictable erratic
  prices and market interest.

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Features Benefits

• Prices, coverage, deductibles are more
  predictable-huge benefit to budgeting.
• Pricing, etc. can be based on your own
  results--not those of the entire class or your
  insurers.
• Direct access to reinsurance markets at lower
  costs.
• Direct control over claims, loss control

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Features Benefits

• Reduced overhead. Traditional insurance can cost
  35-40 of your premium for administration, taxes,
  licenses, fees, etc. Captive programs typically
  remove 10-15 points of that cost.
• Reduced Taxes. AZ has no premium or income tax.
  IRS allows deductions for reserves IBNR
  premiums are Business expenses, etc.

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Features Benefits

• Freedom to insure common lines, e.g. Professional
  General Liability, WC, etc. as well as
  non-traditional, e.g. credit risk, employee
  benefits, political risk, pollution, deductible
  reimbursement
• Keep your profits and investment income rather
  than giving it to insurers.
• A loss financing mechanism improving overall risk
  management.

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Costs

• First year license and fees 1175. Renewal
  license 5500/year.
• Start-up costs of at least 50,000 for actuarial
  study, legal and accounting work, hiring a
  captive manager, hiring a company to handle
  claims if you dont do so yourself.

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Capitalization Costs

• Pure/Single Parent 250,000.
• Group, Assoc. Agency 500,000 but divided up
  by all of the members.
• Protected Cell 1,000,000 but divided up by all
  of the participants.
• Reinsurer one-half amounts above.
• minimum capital surplus required.

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Some Disadvantages

• Increased administrative management
  responsibilities--self or hired.
• Reliance on service providers.
• Money to capitalize is tied up.
• Possibility of greater losses than expected
  requiring capital infusion.
• Not all participants in the group will have
  equally good or bad results.

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Why Arizona?

• Desirable/Accessible/Affordable Destination. for
  both professional and personal objectives.
• Phoenix 5th largest US city 5th busiest US
  airport
• Big city attractions with areas of small town
  charm
• Old West history and activities
• Infrastructure . a leading state for alternative
  risk since the early 1970s with all of the
  support mechanisms necessary to complement it.
• If captive law included Life Disability
  Reinsurers (LDRs) as some other domiciles do, AZ
  would be the SECOND Largest US domicile with
  about 370 captives.

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Why Arizona?

• Regulatory. Arizonas Department of Insurance
  has responsibility for regulating almost 3000
  insurers.
• Largest of any active US domicile (VT, SC, HI,
  DC, NV)
• Excellent reputation with NAIC non-captive
  states.
• No problem with RRG registrations in other
  states.
• Continuous commitment to improvement.
• Experienced User Friendly helpful dedicated
  professionals averaging 23 years in the industry.
• No prejudices. Open to all types of programs,
  industries, financing or investment options

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Why Arizona?

• Costs one of the most cost efficient states for
  conducting business with a broad range of support
  services and accommodations.
• Taxes... No premium or income tax.

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Why Arizona?

• Favorable Business Climate . Although not all
  items below pertain to captives, they provide
  insight into the business attitude of the state
• No Income Tax on Dividends from out-of-state
  subsidiaries
• No Business Inventory Tax
• No Corporate Franchise Tax
• No Worldwide Unitary Tax
• Aggressive Accelerated Depreciation Schedules
• Virtually all services exempt from Sales Tax

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Why Arizona?

• 22 national parks, monuments and wildlife
  preserves, in addition to the Grand Canyon
  National Park
• Year-round golf, tennis, horseback riding,
  bicycle riding and hiking facilities
• Professional sports include NASCAR NBA Suns
  NFL Cardinals MLB Diamondbacks NHL Coyotes.
• Major League Spring Training and Cactus League
  Cubs, Brewers, Giants, Angels, Mariners, Padres,
  As, White Sox, Rockies, Royals, Rangers.

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Why Arizona?

• Internationally renowned for its
• Unsurpassed natural beauty
• Pleasant desert winters
• Outdoor recreational activities
• Diverse cultural opportunities
• Western and Indian art
• Old West history
• Resorts and conference centers

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Next Steps

• Get a Feasibility Study financial analysis,
  legal issues, actuarial projections, tax
  projections, etc.
• Decide if you want to act on your own or in
  concert with others similarly situated and
  interested.
• Pick Arizona for your domicile.