cjpia executive committee workshop
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CJPIA Executive Committee Workshop. Exploring Alternative Legal Structures for Pooling: Captives April 25, 2014. Pools Exist Today in a Variety of Forms. JPAs with Risk Retention. Municipal Mutual Insurers Comp. Simple contractual agreement. Joint Powers Authorities. Captives. - PowerPoint PPT PresentationTRANSCRIPT
CJPIA Executive Committee Workshop
Exploring Alternative Legal Structures for Pooling: Captives
April 25, 2014
2
Pools Exist Today in a Variety of Forms
Simple contractual
agreement Joint Powers
Authorities
JPAs with
Risk Retention
Special Legislation
Captives
Reciprocals
Municipal Mutual
Insurers Comp
“Group Self-Insurance”“Non-Profit Mutual
Insurance Companies”
• Long Term Commitment• Risk Sharing• Homogeneity of Interest• Equitable Profit/Loss: “Rough Equity”• Commitment to Risk Management• Political Support
Key Values for Successful Risk Pooling
4
Long Term Commitment
5
Risk Sharing
6
Homogeneity of Interest
7
Equitable Profit (and loss) Distribution: “Rough Equity”
Commitment to Risk Management
9
Political Support
• Long Term Commitment• Risk Sharing• Homogeneity of Interest• Equitable Profit/Loss: “Rough Equity”• Commitment to Risk Management• Political Support
Key Values for Successful Risk Pooling
11
Captive Definition
• A licensed insurance company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing risk financing to the owner or owners.
• Single Parent (Pure) Captive– Wholly owned by one parent company
• Group Captive– Owned by two or more companies, usually a trade
association or homogenous group of companies
Types of Captives
13
Why captives are formed
• For all the same reasons as Pools, PLUS:– Tax Benefits (for-profit)– Regulatory Reasons
• To gain authority to do things– To cross state lines (in fronted or RRG form)– Increase investment options– Increase coverage reach
• To protect from others– Open meeting and records laws– Political pressures adversely influencing public entities
• To gain certainty
14
Captive DomicilesNumber of Active Captive Insurance Companies
01002003004005006007008009001000
15
Example: Captive plus JPAReinsured Program
M
E
M
B
E
R
S
Premium RRG issues a 1m/3m policy to members
Paid-In Capital
Reinsurer$750k x $250k
Ceded Premium
16
Example: Captive Replaces JPAFronted Program
M
E
M
B
E
R
S
Front Company(statutory
limits)
Program
Premium
Captive(working layer)
ReinsurancePremium
Paid-In Capital
Policy Issuing Carrier
17
Public Entities Using Captive Insurers
• NLC Mutual Insurance Company– Reinsures Risk Pools
• United Educators Ins., A Reciprocal Risk Retention Group– Insures Colleges and Universities
• States Self-Insurers Risk Retention Group– Insures municipalities
• Pelican Insurance: A Reciprocal Risk Retention Group (owned by PA Counties Pool members)– Insures County Owned Nursing Homes
18
Public Entities Using Captive Insurers
• Public Risk Mutual and Public Compensation Mutual– Used as excess insurer of Nevada pools
• ASCIP– Single parent captive reinsures OCIP; underwriting profits accrue to
captive• SET-SEG
– Bermuda Captive provides regulatory requirement for aggregate stop loss
• Transit Re– Group captive reinsures transit pools
19
Summary• Captives provide all the benefits available for
pools
Captives may provide additional benefits not available to poolsCaptives may protect pools from certain operational risksCaptive regulators are generally knowledgeable and business friendly
plus