Captive insurance

Improve risk management, lower costs and increase efficiencies.

Why captive insurance?

A “captive” is a licensed insurance company utilized to insure a wide range of risks depending on business needs. Many businesses begin with coverages such as the deductible or self-insured portions of general liability, auto, casualty, property and workers compensation losses, but often expand coverages to include unique risks such as management liability, environmental liability, terrorism, cyber, professional liability, and extended warranty claims. Risks can be first-party or third-party, and companies can be creative in how they utilize their captive programs.

Entities with captives are diverse in scale and risk profile and include Fortune 500 companies, private companies, and non-profit organizations. Captive utilization spans across market sectors including automotive, telecommunications, technology, retail/consumer, manufacturing, healthcare, pharmaceutical, and energy.

Benefits of a captive include the ability to tailor coverage for hard to insure or emerging risks, apply alternative strategies to deal with insurance market cycles, provide financial incentives for loss control,  offer flexibility in managing risk, offer creative insurance solutions, allocate costs to business units, and consolidate risk management.

A captive operates like a traditional insurance company and is subject to state regulatory requirements, albeit potentially less onerous than commercial market ones. Requirements include financial reporting, capital/ solvency support, reserve adequacy, and an annual actuarial opinion.

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Insurance captive claims analytics solution

PwC's claims analytics solution provides clear indicators of the future outcome of open claims, including drivers to inform approach, determine assignment strategy and potentially mitigate future occurrences.

Hardened insurance market and captive insurance

At the outset of 2020, risk professionals who were trying to purchase or renew insurance policies had to navigate an increasingly hardening insurance market characterized by higher rates in almost all lines. The coronavirus pandemic and natural catastrophe losses have only made matters worse.

Captive insurance companies came into existence because of difficult markets, like the one we’re experiencing now. They offer companies greater flexibility to retain risk and insurance/reinsurance options to manage a hard insurance market.

Services for all stages of the captive life cycle

Our risk management, accounting, actuarial, and tax professionals work together to advise clients throughout every stage of the captive life cycle, from feasibility and formation to ongoing maintenance and enhancement. As needed, we also advise on captive closure considerations.

Captive feasibility: Making the right choices early on

Successful captive operations need to be thoroughly researched and properly planned. Every company has different needs, and consequently every captive structure is different. We can assist you with all aspects of the captive establishment process including:

  • Feasibility studies;
  • Risk management studies;
  • Tax structuring and opinions;
  • Actuarial and reserving assistance;
  • Accounting guidance;
  • Formation assistance;
  • Regulatory consulting.

Captive review: How does your captive hold up?

Businesses often evolve over time by acquisition, or divestiture, or by launching new businesses or operations. Risk profiles, legal structures, regulatory environments may change. Existing captives should periodically review their operations to determine if the captive continues to meet the owner’s needs under current circumstances and if opportunities exist to enhance it.

Additionally, while the Internal Revenue Service has accepted the use and role of captive insurance arrangements as an integral part of a comprehensive risk management strategy, they continue to challenge captive insurance arrangements which fail to comply with the principles and guidelines established by the courts in defining "insurance" for US federal income tax purposes. 

Captive Health Check

A Captive Health Check helps companies assess how their captive insurance arrangements stand up against principles and guidelines, as well as to confirm the captive insurance arrangement continues to support the business. It serves as a platform for identifying leading practices and possible enhancements to improve the captive's financial and tax benefits and enhance risk management.

The Health Check serves as a platform to reaffirm the business use of the captive, apply  leading practices, and identify possible enhancements to improve the captive's financial, tax, and risk management performance by:

  • Reviewing existing corporate structure and considering how the existing captive works to support and enhance risk management strategies;
  • Assessing additional risks and lines of coverage for inclusion in the captive insurance arrangement;
  • Analyzing the current regulatory environment;
  • Evaluating opportunities for capital, investment and other treasury efficiencies;
  • Identifying structural and operational deficiencies and/or opportunities in current captive insurance arrangements from a US federal, state, and international tax perspective; and
  • Recommending ways to strengthen the captive’s overall tax position, while considering the company’s overall risk management and business goals.

Captive modernization

Captive modernization enhances captive performance by evaluating and improving actuarial systems. We help companies modernize captive arrangements and enhance data analytics, resulting in:

  • Improved operations and lower costs through more efficient and appropriate use of resources;
  • More accurate reserving and risk selection through new modeling capabilities that harness enhanced data analytics, often hosted in cloud applications;
  • Streamlined data collection processes that reduce administrative burden and provide “one source of the truth” for many stakeholders;
  • Transparency in processes for a robust internal control framework that improves data reconciliation, financial reporting processes, and compliance with accounting and regulatory standards;
  • Strategic vs. reactive policies and improved captive program flexibility as a risk management tool;
  • Redesigned reporting approaches and tools that produce useful metrics to better communicate risk trends to leadership and business units.

Contact us

John Merrigan

Captives Risk Management Advisory Leader, PwC US

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