1. Basics of Alternative Risk Financing and
Captive Insurance Strategies
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2. Questions to Ask Prior to Selecting
Risk Financing Strategy
• What is your risk appetite?
• How diverse is your
Company’s operations?
• How strong is your
Company’s Financial
Statements (Cash Flow)?
• What are the State Insurance
Laws?
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3. What is Captive Insurance?
• A subsidiary formed to
insure the risks of its
parent and affiliates.
• A captive is sometimes
owned by and insures
more than one parent.
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4. Why Form a Captive?
• Allows the Parent company to maintain
control of their insurance program during
hard and soft market cycles
– Greater control of risk management program
– Greater access to reinsurance markets
– More flexibility with insurance coverages
– Investment income opportunities
– Stability of the price cycle
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5. Which Type of Captive Should I Form?
• What types of coverage
does my client require?
• Is my client able to
purchase insurance in the
commercial market?
• How many states does
my client operate in?
• What are the State
Insurance Laws?
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6. Captive Insurance Structures
• Pure captives
• Group captives - association, risk retention
groups
• Rent-A-Captives / Leased capital facilities
• Protected Cell Captives
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7. Basic Illustration of a Direct-Writing Pure Captive
Insurance Program
Captive Owner(s) /
Insured(s)
Premium $ Paid Loss $
Covered Claim
Excess Insurance Excess Loss
Premium $$$ Reimbursement $$$$
Captive Insurance
Company
Loss Reimbursement $
Excess Insurance
Company Reinsurance
Premium $
Reinsurance
Company
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8. Captive Structures
• Pure Captive
– Insures the risk of its Parent, affiliates,
or companies that have a working
relationship with the Parent Company
– Provides insurance or reinsurance for
all lines of insurance
– Licensed in State of Domicile and non-
admitted in all other states
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9. Pure Captive Structure
Parent Company
Insured is parent,
subsidiaries, affiliates
or companies that
have a business
relationship with
Parent Company
Fronting Carrier
(Could be RRG)
Admitted Insurer in all
50 states, provides -or-
policy to insured
Pure Captive Insurer
Provides direct insurance or
reinsurance.
Excess Insurer Reinsurer /
Retrocessionaire
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(Insures above
Captive (Reinsures Pure
retention) captive)

10. Captive Structures
• Risk Retention Group
– Insures the risk of its members
– Provides insurance or reinsurance for
liability lines of insurance only
– Licensed in State of Domicile and
registers in all other states
– Able to provide direct coverage in every
state registered
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11. Risk Retention Captive
Structure
Members
Members must be
engaged in any
related, similar or
common business,
trade, product,
services, premises or
operations.
Risk Retention Group
Provides direct insurance to its
members in all 50 states after
registering with each state. Can
only provide liability insurance.
Reinsurer
(Could also be pure captive,
rent-a-captive or risk retention
group) 11
Provides reinsurance excess of
RRG’s retention

12. Captive Structures
• Association Captive
– Insures the risk of its members
– Provides insurance or reinsurance for
all lines of insurance
– Licensed in State of Domicile and non-
admitted in all other states
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13. Association Captive
Structure
Member
Organization
Made up of any legal
association of
individuals,
corporations,
partnerships, or
associations, except
labor organizations
Fronting Carrier
Admitted Insurer in all
50 states, provides -or-
policy to insured
Association Captive Insurer
Provides direct insurance or
reinsurance.
Reinsurer /
Retrocessionaire
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(Reinsures Association
Captive)

14. Captive Structures
• Rent-A-Captive
– Formed by a Sponsor
• Some states allow an Agency to Sponsor
• Some states allow only Insurance Company to
Sponsor
• Some states allow any organization to Sponsor
– Provides insurance or reinsurance for all lines
of insurance
– Licensed in State of Domicile and non-
admitted in all other states
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15. Rent-A-Captive Structure
Sponsor
Varies by Domicile – either insurance company,
captive insurance company or any entity that is
approved by the commissioner to provide all or part
of the capital and surplus required by applicable
law
Fronting Carrier
(Could be RRG)
Admitted Insurer in all 50
states. Issues policy to
be reinsured by Cell
Cell A Cell B Cell C
any entity, partners, any entity, partners, any entity, partners,
or joint venture or joint venture or joint venture
partners, or members partners, or members partners, or
within the same within the same members within the
corporate family of corporate family of
same corporate
the entity that are the entity that are
family of the entity
insured by a rent-a- insured by rent-a-
that are insured by
captive captive
a rent-a-captive
Reinsurer
Reinsures each participant
(protected cell) of the Rent-A-
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Captive

16. Capital & Surplus Requirements
Domicile Pure Group Association Agency Rental
AZ $250k $500k $500k $1m
DC $100k $100k - $100k - $100k –
300k 300k 300k
MT $250k $500k $750k N/A N/A
NV $250k $500k $600k $750k
SC $250k $500k $750k N/A $1m
VT $250k $500k $700k $500k
Domicile Class Class 2 Class 3 Class 4 Class 5
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HI $100k $250k $500k - $750k $1m TBD
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17. Premium Tax Table - Direct
Domicile Minimum $1-20M $20-40m $40-50m +60m
AZ None None None None None
MT $5,000 0.40% 0.30% 0.20% 0.075%
NV $5,000 0.40% 0.20% 0.075% 0.075%
SC $5,000 0.40% 0.30% 0.20% 0.075%
VT $7,500 0.38% 0.285% 0.19% 0.072%
Domicile Minimum $1-25m $25-50M $50m+
DC $10,000 0.25% 0.15% 0.05%
RRG
$7,500 all
other
HI None 0.25% 0.15% 0.05%
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18. Premium Tax Table - Reinsurance
Domicile Minimum $1-20M $20-40m $40-60m +60m
AZ None None None None None
MT $5,000 0.225% 0.15% 0.05% 0.05%
NV $5,000 0.225% 0.15% 0.025% 0.025%
SC $5,000 0.225% 0.15% 0.05% 0.025%
VT $7,500 0.214% 0.143% 0.048% 0.024%
Domicile Minimum $1-25m $25-50M $50m+
DC None 0.25% 0.15% 0.05%
HI None None None None
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19. Application and Annual Fees
Domicile Application Certificate Annual Other
Fee of Renewal Fees
Authority Fees
Fee
AZ $75 $1,000 $5,500 $100
DC $500 $300 $300 Misc
HI $1,000 $300- $300-1,000 Misc
$1,000
MT $200 $300 $300 Misc
NV $500 $300 $300 Misc
SC $200 $300 $300 Misc
VT $200 $300 $300 Misc 19

20. Review and Evaluation Issues
• Financial Implications
– Funding Sources
– Risk Retention / Transfer
• Operational
Considerations
– Servicing Requirements
– Captive Management
• Regulatory Implications
– Domestic and International
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21. How to Establish a Captive
• Captive Consultant – Feasibility of
Captive
• Actuary – Review of Loss History
• Domicile Legal Counsel – Assist with
Domicile Law
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22. Formation and Implementation Process
• Introductory Meeting with Regulator
• Application and Business Plan Filing
• Formation and Licensure
• Ongoing Monitoring
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23. Introductory Meeting with Regulator
• Meeting with Domicile with Regulator
• Present and discuss captive plan
• Provide information about parent
organization
• Receive “yes” or “no” from Regulator
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24. Application and Business Plan Filing
• Captive Manager works with service providers
and captive owner to prepare Application
• Includes
– Domicile specific application
– Business Plan
– Pro-Forma Financials
– Actuarial Report
– Biographical affidavits – Service Providers, Officers
and directors
– Copies of Policies to be issued
– Miscellaneous
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25. Formation and Licensure
• Captive Manager works with legal counsel
• Legal counsel prepares
– Articles of Incorporation
– By-Laws
• Once application approved by Regulator, Insurance
Department issues Certificate of Good Standing
• Legal counsel files with Business registration
department for business name
• Parent Organization capitalizes captive (LOC or
Cash)
• Legal counsel files approved Articles and By-laws
along with license fee and any other docs with
Insurance Commissioner
• Insurance Department issues Certificate of Authority
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26. Ongoing Monitoring
• Compliance with Approved Business Plan
• Compliance with Domicile rules and
regulations
• Compliance with Domicile Investment
laws
• Federal Income Tax
• Annual Filings
– Audit (GAAP or SAP)
– Actuarial
– Domicile specific forms
• Examinations
• Annual Meeting Requirement
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27. Where to find information on Captive
Insurance
• Captive.Com - www.captive.com
• National Risk Retention Association –
www.nrra-usa.org
• Captive Insurance Companies Association –
www.captiveassociation.com
• Captive Insurance Company Reports –
www.irmi.com
• Risk Retention Reporter – www.rrr.com
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