Captive Insurance Articles
Over the years, Capstone has published numerous articles on captive insurance to help savvy professionals learn more about the industry. Our CEO and General Counsel Stewart A. Feldman has authored many of these articles, providing expert commentary on changing regulatory laws, misnomers about the industry, and the benefits of forming captive insurance companies. Our team is passionate about providing the facts to anyone who is conducting due diligence on captive management companies and managers. We know it is important to consider all factors when looking to alternative risk management solutions. That’s why we have made these professional articles readily available to the public.
In our library, you will find one-on-one interviews, eBooks, magazine articles, podcasts, videos and other resources. If you have questions about any of the material or want to learn more about the turnkey captive planning solutions Capstone and its affiliated law firm offer, feel free to give us a call. We’re available to answer your questions during normal business hours at WEB_TEL . We’re looking forward to connecting with you.
Captive structures have long been marketed by insurance brokers as a way to control and stabilize the cost of insurance, but these brokers often fail to maximize the benefits of a captive. Captive insurance companies are often overlooked and misunderstood because their costs and benefits are not simple to explain.
A business that doesn’t have a captive insurance program in place may soon be in the minority: Insurance industry trends indicate that most middle market businesses either have or will soon implement a captive insurance program.
Stewart A. Feldman, CEO and General Counsel of Capstone Associated Services, Ltd., was recently interviewed for The Entrepreneur Podcast Network, an Internet radio program with over 17,000 listeners internationally. Listen to the podcast, or read the interview entitled, “Captives: Why Own Your Own Insurance Company?”
The parent creates a captive so that it has a self-funded option for buying insurance, whereby the parent provides the reserves to back the policies. The company then either retains that risk or pays reinsurers –- companies that backstop insurers -– to take it. The price for coverage is set by the parent, though reinsurance costs, if any, play a factor.
There has been a proliferation of US domiciles adopting captive legislation over the past several years. The push began in the early 1980s with Vermont aiming to create jobs in an otherwise remote part of the country and several other states have followed suit.
Captives are instrumental to many organizations’ risk solutions. As their popularity grows, so do the number of captive managers and the diversity of backgrounds of persons professing to be ‘captive managers’. It is paramount for captive owners to ensure they have the best possible ﬁrms managing their captives. Given that captives’ tax and corporate structures are fundamental to alternative risk planning, can captive owners really take the risk with ‘captive cowboys’?
Captive insurance companies have been growing by leaps and bounds. A captive is an insurance company that insures the risks of its parent company. It is owned by a parent or, at times, by the shareholders of the parent company. The operating entity insures all or part of its risks with its captive company. The captive may reinsure some or all of such risks, or may retain such risks. The benefits of a captive may be many, but the primary goal is to retain the profit that would have been made by an outside third-party insurance company or to provide coverage where coverage would not be available.
Owners of middle market businesses are attracted to the cost saving, risk management, and profit potential provided by owning their own insurance company. In a recent interview, Stewart A. Feldman, chief executive of Capstone Associated Services, a Houston-based firm specializing in alternative risk planning for closely held businesses, explained: “Many middle-market businesses needlessly ‘self-insure’ a wide range of risks. By self-insurance, I mean ‘pay directly out-of-pocket as losses are incurred’. This is an inefficient and dangerous approach to risk planning.”
A captive insurer makes profit in two ways: (1) through underwriting activities (premiums minus claims) and (2) investment activities. A captive insurer must comply with the investment requirements prescribed by the insurance regulator of the licensing domicile. Typically, the regulator restricts investments that impair the solvency or liquidity of the insurer.
Decades ago, the largest U.S. companies came to realize the benefits of a captive insurance program with the result that there are now as many as 10,000 captive insurers in place worldwide – with the majority affiliated with American businesses.
Every so often I come across a financial strategy that sounds too good to be true. That was how I felt when I heard about the increased use of captive insurance companies by entrepreneurs and small-business owners.
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