What is Captive Insurance?

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Austen Farmer
5 years ago
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2 What is Captive Insurance? Captive insurance is the process by which insured risks can be combined to access the wholesale re-insurance market, historically only available to companies due to the size of premiums required by re-insurance companies. We have now created an innovative and highly cost-effective solution to provide the same benefits of substantially lower premiums and more client-focused risk management for privately held assets. We combine each family s insurable risks to access the re-insurance market but rather than the costs of establishing a stand-alone captive insurance company, we have developed the use of a Protected Cell Company (PCC) to provide the captive insurance. The PCC is licensed & regulated by the Guernsey Financial Services Commission (GFSC). The PCC can create multiple cells, each one effectively providing a wrapper through which a family s entire assets can be insured. By combining all the risks into one policy, there is sufficient premium to obtain insurance cover from a re-insurance company. There is a single policy & premium rather than the cumbersome administration when assets are insured individually. 1

3 What is Captive Insurance? Each cell is legally segregated from the other cells and separately licensed & regulated in addition to the PCC as a whole. Families therefore have two levels of protective regulation in addition to the corporate governance of the PCC itself. The insurance risks within a family s cell can be either partially retained (if the family office identifies a specific level of exclusions which will reduce premiums) or be fully re-insured by the captive insurance manager. If the family opts to retain some risk within the captive insurance company (i.e. pay the premium but not fully re-insure the total value or risk), if there is no loss, a surplus of capital can be built up over time. This surplus can then be carried forward to cover any future losses and act as an offset against the future amount of re-insurance required. This will mean that premiums will fall over time. If the family does not want to retain risk (i.e. accept a level of exclusions), then the total risks can be fully re-insured and the captive used for re-insurance arbitrage, thereby benefitting from the cheaper premiums available from the wholesale re-insurance market. This innovative solution provides families with bespoke captive insurance for both personal assets and any companies they own at a fraction of the cost of establishing a stand-alone captive insurance company. Additionally, it provides families with the following benefits. 2

4 The Benefits of PCI s Captive Insurance By combining all the insurable risks within the cell under one policy, there is sufficient premium to access the re-insurance market where the cost of cover is substantially lower. Ability to obtain cover for risks traditionally difficult or impossible to insure (e.g. Kidnap & Ransom). As the family s captive manager places the risks in each cell directly with the re-insurance company, there are no insurance brokers commissions which are typically 15% 25% embedded within the premium. Premiums are based not only on the value of each asset but also the claim history. The family office will therefore pay insurance based upon the family s own risk profile, not on the general insurance market rate, which can lead to substantial cost savings. Captive insurance provides flexible risk management as even a modest level of exclusions can result in a large cut in the family s premium. However, full coverage can be provided, if preferred. 3

5 The Benefits of PCI s Captive Insurance As financial solvency to pay claims is critical, PCI has selected two of the largest and best capitalised re-insurance companies globally. Alternatively the family office can select the re-insurance company if preferred. The PCC and the individual cells are managed by one of the most experienced captive insurance managers globally. There is minimal administration for the family office, as an annual cell owner s meeting typically covers all the relevant issues. PCI has created a more cost-effective solution to insurance management than creating a personal family-owned insurance company which requires substantial capital outlay and is costly to run. There are potential tax benefits if the family s assets are held through certain types of offshore trust, especially where there is a non-domiciled settlor with a retained interest. Tax benefits may also apply to situations where the family owns trading companies. NB: We are not tax advisors and you should seek specialist tax advice. 4

6 What can be included in your Captive Cell? What can be included in your Cap+ve Cell? High value personal assets owned by the Family High value personal assets owned by trustees PROPERTY ART & COLLECTABLES MARINE AVIATION BLOODSTOCK 5 5

7 What can be included in your Captive Cell? What Can be Included in Your Cap+ve Cell? Trading and commercial companies owned by the Family Trading and commercial companies owned by trustees PROPERTY PUBLIC LIABILITY MOTOR COMMERCIAL PROPERTY PERSONAL INDEMNITY KIDNAP & RANSOM 6 6

8 Contact Details t Details Paul Bailey (0) Russell Bussey (0) Dennis Govan (0) paulbailey@privatecap+ve.com paulbailey@privatecaptive.com russellbussey@privatecap+ve.com russellbussey@privatecaptive.com dennisgovan@privatecap+ve.com dennisgovan@privatecaptive.com W This information is designed to provide an overview of the subject matter (errors & omissions excepted). The information supplied is not intended to be comprehensive, where the issues discussed are detailed and complex. This information is not intended to provide advice nor can be construed as doing so, where the generally, or in respect of a specific arrangement or transaction. 7 Accordingly, no reliance should be placed upon this information and you should obtain your own independent legal, tax, investment and other professional advice before entering into, exiting or refraining from entering into or exiting, any arrangements or transactions where such issues as discussed may arise. Private Captive Insurance PCC Limited, Noble House, Queens Road, St Peter Port, Guernsey GY1 1PT Registered in Guernsey. Company Registration No Licensed & Regulated by the Guernsey Financial Services Commission

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