Why Conduct a Feasibility Study And Business Plan?
A Clipeum Assessment is important because it answers the essential question; “What will my return on investment be by establishing my own insurance company?” Prospective shareholders of the captive should have a clear understanding of what to expect when their capital is used to establish an insurance company.
Our first step in this Assessment will be to evaluate the strategic purpose for a captive insurance company within the context of your business plan and operating context.
Return on Capital:
The Assessment is conducted to determine the payback period and rate of return on capital deployed and to answer the key organizational and operational questions that will have an impact.
Here is a partial list of reasons to form your own “Captive” insurance company.
The Assessment’s intent is to determine quickly if these reasons are valid for your situation, and if other characteristics unique to your business can be discovered.
- Recognize and quantify risk inherent within the operations which forms a liability that can be funded for and expensed immediately as opposed to waiting for a loss to occur.
- Stabilize insurance budgets of related operating companies.
- Negotiation tool through the ability to accept higher deductibles and retentions.
- Utilize your own experience to address risk.
- Broad and customized policy terms & conditions including coverage that may either not be widely available in the conventional insurance market or, if it is available, it is on punitive terms and conditions to the insured.
- Claims control and loss prevention.
- Recapture underwriting profits.
- Access to reinsurance markets.
- Underwrite risk where insurance is generally unavailable or too costly.
- Creates a new profit center.
- Contingent liability risk shifting for risk outside of insured’s control caused by third parties cost reduction/stabilization.
- Tax Treatment.
The focus of our study will depend on the motivating factors for establishing the captive that we identify during our preliminary interviews with you. At its core, the feasibility study is a financial and risk management analysis that will always contain the following:
• Assessment of potential risk to be insured.
• Actuarial analysis including premium rates, rating methodology and loss pick.
• Analysis of loss reserve requirements.
• Fronting carrier options/availability.
• Reinsurance options/availability.
• Consulting regarding capitalization requirements.
• Analysis of options for entity structure, formation and operation.
• Expense projections for various operational structures.
• Evaluation of appropriate domicile, both foreign and domestic, controlled and non-controlled foreign corp.
• Overview of relevant tax considerations.
• Five-year prospective financial statements.
• Dividend and/or profit allocation system.
Once completed, and if we collectively determine at our Decision Gateway meeting to “Go”, then this Feasibility study later becomes the foundation and outline for the full business plan for your captive insurance company.
Among other components, the full business plan will develop actuarial support for the loss assumptions, a description of how “reinsurance” may function behind the captive, and how much capital will be required to make the captive financially viable.