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We formed and operate the first series LLC in Montana (named Aegis) for captive insurers. Several other firms provide key services such as accounting, audit and actuarial work. Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company
We offer free CLE to CFPs who want to learn about captives. Our next webinar is November 21st at 9AM, CST. You can sign up at this link. Captive insurance started and then continued growing due to market failure – an economic term that means the free market, for whatever reason, didn’t provide a good or service. Some risks are simply too new to be properly understood by traditional insurers, forcing companies to form their own insurance companies. The Ocean Drilling case is a classic example: During the 1960's plaintiff faced difficulties insuring its drilling rigs. At that time the drilling rig business was written predominately by the Lloyd Syndicate ("Lloyd's"), with the London Market serving as an ancillary market to Lloyd's. As the technology of drilling rigs developed rapidly, Lloyd's adjusted its insurance rates in an attempt to cover itself against potential losses from the new drilling rigs. Because of the limited experience in insuring the new rigs and a number of substantial losses on these rigs, insurance rates increased sharply. By the end of the 1960's, rates were as high as 10 percent of the value of insured vessels, and plaintiff was unable to obtain full coverage of its rigs through the existing insurance market. In response to this dilemma, plaintiff analyzed its history of premiums and losses and determined that establishment of a captive insurer could alleviate the problems that plaintiff faced in the insurance market. In 1968 plaintiff established Mentor as a wholly-owned subsidiary incorporated in Bermuda The following article from the Financial Times highlights how auto insurers are trying to underwrite new risks associated with driverless cars. You can rest assured that as this technology develops, captives, not traditional insurers will lead the way. Japan’s top insurers are studying new products to brace themselves for the age of self-driving vehicles that could redefine insurance premium burdens for carmakers as well as car parts makers and technology companies. Industry studies have forecasted a steep decline in car insurance premiums as the number and severity of accidents fall with the emergence of autonomous vehicles. But Japanese insurers MS&AD and Tokio Marine say the transition to driverless technology also brings opportunities with the increasing costs to repair cars, the emergence of new risks and changes in the way insurance will be bought. “With the mix of self-driving vehicles and traditional cars, there is a possibility that unforeseeable accidents will occur. We expect the weight of new types of insurance products for new risks such as cyber attacks will increase significantly,” said Hideyuki Sakashita, manager at Mitsui Sumitomo Insurance.
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We formed and operate the first series LLC in Montana (named Aegis) for captive insurers. Several other firms provide key services such as accounting, audit and actuarial work. Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company
We offer free CLE to CFPs who want to learn about captives. Our next webinar is November 21st at 9AM, CST. You can sign up at this link. As the news story below shows, natural disasters like Hurricane Matthew can cause a tremendous amount of damage. When events like this occur, large insurers are more likely to challenge claims. Remember – even though you’ve contracted with them for a particular service, they’re also a for profit company. For them, an aggressive claims practice could shave millions off payouts. Commercial real estate (CRE) companies can limit this problem by forming a captive insurance company that underwrites a deductible reimbursement policy for a third-party property policy. For example, the CRE company keeps its third party coverage, but adds a $500,000 deductible which is then covered by the captive. Conceptually, this turns the third-party policy into excess coverage. This structure gives the captive parent complete control of the claims process, minimizing claims processing paperwork and returning the parent company to normal operations faster. From the Street.com At least 100,000 insurance claims stermming from damage inflicted by Hurricane Matthew are anticipated to be filed with payouts expected to exceed $7.5 billion, reported by the Consumer Federation of America. Damage from wind is forecast to lead the claim list, despite the number of homes that experienced flooding, especially in North Carolina. "Families will have to dig deeper into their pockets because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other policy limitations," said J. Robert Hunter, director of insurance for CFA and former federal insurance administrator and Texas insurance commissioner in a statement "This liability shift to consumers may take some by surprise, since disclosures are often buried in renewal paperwork that consumers may not understand or even read," he added. "Because so many consumers experienced claims problems in the wake of Hurricanes Katrina and Superstorm Sandy, we urge homeowners dealing with losses caused by Hurricane Matthew to be vigilant with their insurance companies to ensure that that they receive a full and fair settlement." https://www.thestreet.com/story/13855892/1/hurricane-matthew-insurance-claims-expected-to-top-7-billion.html?puc=twitter&cm_ven=TWITTER&utm_source=dlvr.it&utm_medium=twitter We offer free CLE to CFPs who want to learn about captives. Our next webinar is October 26th at 9AM, CST. You can sign up at this link. At the end of last year, Congress changed the rules that apply to 831(b) captives. Below is an article that explains the changes. If you need an opinion to determine if your captive is in compliance, please call us at 832.330.4101. 
If you’d like to learn more about how a captive insurance company could insure your company’s supply chain or other risks, please call as at 832.330.4101.
Investopedia defines a supply chain as “a network between a company and its suppliers to produce and distribute a specific product.” Merriam Webster defines “disruption” as “causing (something) to be unable to continue in the normal way: to interrupt the normal progress or activity of (something).” Therefore, a “supply chain disruption” is an “interruption of a specific distribution network.” Thanks to Hurricane Matthew, which is currently off the U.S. east coast, any north east company that relies on Atlantic Coast shipping is experiencing a “supply chain disruption,” an event that could potentially delay projects and eventually cost the company a great deal of money. To get a better idea of the nature of this problem, consider the 5 top 2014 disruptions:
The shortest duration of impact was 10 weeks. But that was for a geographically contained area: Arizona. Weather events -- such as a typhoon or hurricane -- can caused problems for 8 months. And the overall damage can be in the billions of dollars. Think about the potential impact of this loss on your business’ bottom line; it could probably bankrupt a business that wasn’t insured. This is a classic example of a stochastic (low frequency, high payout) risk. These risks are best handled by a captive. If you’d like to learn more about how a captive could insure this or other risks your business faces, please call me at 832.330.4101. |
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