A captive feasibility study provides your management team with essential information for assessing the benefits and costs of forming a captive insurance company and preparing a business plan. Many insurance regulators require a feasibility study as part of the captive insurer application, but many of our captive services are intended to be of value well beyond the application stage.
What is a Captive Feasibility Study?
A captive feasibility study is a detailed, reliable, and comprehensive analysis of specific aspects, or the entirety, of a captive insurer’s formation or even ongoing operation. The study is designed with the captive’s structure in mind. A captive insurer can, for example, be formed to provide insurance to its parent company outside of the common commercial insurance market with initial capitalization and management provided by the parent.
Based on your needs, the scope of the study can be designed to assess operating costs, the risk profile, capitalization adequacy, or the capacity to assume the parent’s insurable risk. Studies can also be structured broadly to include Enterprise Risk Management or Economic Capital Modeling services.
What is the value of a Captive Feasibility Study?
A feasibility study provides answers to the high-level questions of whether forming a captive is a sound business decision, and, if yes, then how should the captive be structured and capitalized, including on an on-going basis. Feasibility studies allow you to make informed decisions about the structure and capitalization of your captive for both internal and regulatory purposes with a focus on future forecasts of your captive’s profitability and solvency.
How can Huggins help?
Feasibility studies can be performed to span a wide range of topics. Huggins can help determine the breadth of study that best reflects your circumstances and needs. In some cases, a client is interested in Loss Reserving services such as a Loss & LAE Reserve Analysis, an Unearned Premium Reserve Analysis, or Estimating Loss Funding Levels for the Coming Year. A client may also be interested in Appointed Actuary services such as certification of loss & LAE reserves (Issue a Statement of Actuarial Opinion). Clients are often also interested in Rate Making & Product Development services such as a Profitability Analysis; or Prepare and Submit Rate, Rule, or Form Filings; or Derive and File Loss Cost Multipliers (LCM). An Enterprise Risk Management service such as Evaluate Your Organization’s Current or Alternative Reinsurance Programs may also be of interest. In any case, we can help by performing any of the following studies singularly or in combination:
Captive insurers are generally subject to the same regulations as other insurance companies. Those regulations do have important differences from one state to another. Huggins can help choose the best domicile, taking your specific circumstances into consideration.
Allocate Cost of Risk Across Covered Entities
Overall costs must sometimes be allocated internally over, for example, the separate operating divisions insured by the captive. Allocations are often performed as part of business planning, profit or loss attribution, or to incentivize risk reduction. We can devise a reasonable approach to fairly allocate costs.
Serve as Company Representative
The actuaries at Huggins are experienced negotiators who can act as your representative in matters such as negotiating collateral requirements, or in discussions with Insurance Departments. Huggins staff are also expert at providing litigation support and expert witness testimony.
Research and Assess Impact of Legislation or Regulation on Your Company
Huggins actuaries invest the time to remain current on legislative matters and regulatory requirements, which can change over time, and can bring that expertise to bear assessing the impact on your captive. Additionally, Huggins can perform compliance calculations, such as for capitalization or solvency assessments.
The Huggins Advantage
Our firm’s philosophy centers on our commitment to the highest level of quality service delivered by quality people. Our long tradition of providing responsive, technical excellence to our clients’ needs through an integrated team approach requires that we focus on quality in every aspect of every engagement.