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Research and Briefings

Considering a Captive? Feasibility 101


Companies establish captive insurance vehicles for at least one of the Six Cs of Captive Value — cost, compliance, control, cover, capacity, and commercial — that provide strategic value to the parent organization. The path to a captive insurance vehicle starts with a feasibility study to access the business case, including the financial, strategic, and operational benefits and limitations of alternative risk financing methodologies. A corporation’s decision on the amount of risk to assume is independent and a priority over determining how to finance the risk, whether retained on the books of the parent or within a wholly owned captive insurance company.

There are several steps that go into evaluating a captive program. The feasibility process includes:

  • Gather information.
  • Review insurance data, loss data, and financial information.
  • Conduct captive modeling.
  • Develop business plan.
  • Determine optimal ownership structure.
  • Analyze tax issues.*
  • Analyze investment policy of the captive.
  • Review corporate governance.
  • Conduct domicile analysis.
  • Present final recommendation to the prospective captive owner.
  • Provide feedback and an ongoing relationship as the captive implementation and formation progresses.
  • Ensure the selected service provider performs captive management services and day-to-day activities.

To perform the study, information requested will typically include:

  • Parent company financial information.
  • Company organizational chart of legal subsidiaries.
  • Tax rates (US, global rates).
  • Insurance summary (noting retentions by line of coverage).
  • Allocation of payroll and revenue by state.
  • Rate of return on parent’s cash flow.

Determining the optimal path for your captive can be a challenge. Our proprietary captive model, Marsh Captive Analytics Platform (MCAP), is an interactive, dynamic platform designed to support the comparison of after-tax total cost of risk for multiple program options. MCAP provides a broad perspective to evaluate and forecast multiple program options for many risk types and the ability to vary retention levels, risk financing vehicles, and captive domicile. If it is determined that a captive vehicle would benefit your organization, Marsh Captive Solutions, with your tax and accounting teams, can help you to determine the setup that meets the unique needs of your organization.

* All such matters should be reviewed with the client’s own qualified tax, accounting, and legal advisors.