hni u: group captive overview
TRANSCRIPT
GROUP CAPTIVE OVERVIEW
How high-performing companies can lower their cost of risk with a group captive.
&
Agenda
• Explain why companies utilize group captives • Address common concerns • Touch on how captives can be utilized for employee benefits • Q&A• Discuss next steps
Over 80% of Fortune 500 Companies utilize a captive
insurance company
Reduce Volatility Share In Severity Risk
Group Purchasing Power
Owner Vs. Buyer Greater control over claimsIncentives for loss controlLeverage With Service Providers
Minimize Insurance Cost
Control Risk
Transparency
Stabilize Costs
Reduce insurance costCapture underwriting profit
Loss Sensitive Pricing
WHY DO COMPANIES USE GROUP CAPTIVES
Unbundled programPartner with like minded businesses
“If you’ve seen one captive…Then you’ve seen one captive”
Dave Provost, Department of Financial Regulation - Vermont
Common Group Captive Structures
1. Casualty Group Captive – middle market businesses coming together to leverage group purchasing power to drive down fixed costs and share in severity claims
2. Employee Benefits – Allows middle market businesses to self-fund in a more stable environment. Take advantage of the law of large numbers & share in severity claims
Who is an Ideal Fit for a Casualty Group Captive? (WC, GL & AL)• $200k-$3M In Casualty Premium • Loss Ratio < 50% • Commitment to Safety & Loss Control• Long Term Mindset • Financially Secure
Reasons to Evaluate A Casualty Captive
• Loss Rated Premium• Retain UW Profits • Quantified Amount of Risk • Unbundled Program • Long Term Stabilization • Transparency & Increased Control
Common Concerns
• Risk Appetite• Risk Sharing • Collateral • Historical Experience
Premium Development
• Premium is developed based on the individual member’s loss experience
Loss Fund
Determined based on an independent
actuary’s review of member’s premium, exposures, and total
incurred losses for the past 5 years
Fixed Costs
• “A” rated insurance policy
• Reinsurance• Risk Control
• Claims Admin.• Captive Mgmt.
• Brokerage• Taxes/Surcharges
Premium
60% 40%
Return of Underwriting Profit Annual Premium Estimate: 500,000
Loss ratio Loss LevelCaptive Cost*
Est. Inv. Income
Captive Net Cost*
Gauranteed Cost
Captive Difference
0.00% 0 210,000 49,395 160,605 500,000 339,395 Best Case Scenario 10.00% 50,000 260,000 44,895 215,105 500,000 284,89520.00% 100,000 310,000 40,395 269,605 500,000 230,39530.00% 150,000 360,000 35,895 324,105 500,000 175,89540.00% 200,000 410,000 31,395 378,605 500,000 121,39550.00% 250,000 460,000 26,895 433,105 500,000 66,89560.00% 300,000 510,000 22,395 487,605 500,000 12,39570.00% 350,000 560,000 16,653 543,347 500,000 (43,347)80.00% 400,000 610,000 9,153 600,847 500,000 (100,847)90.00% 450,000 660,000 1,653 658,347 500,000 (158,347)
114.29% 571,432 781,432 0 781,432 500,000 (281,432) Worst Case Scenario (100% losses +fixed costs)
5 year Savings assuming a average loss ratio of 50% 334,475
Ability to Take a Quantified Amount of Risk – Example Coverage Structure
Workers Compensation
Employer’s Liability
General Liability Auto Liability
Statutory
Sharing Fund (100K to 350K)
Member Fund (0-100K)
$1M
$350K
Captive Retention
Aggregate Reinsurance
Member’s Umbrella Policy
Unbundled Program Control and Accountability
Captive Board
Insured
HNI
Insurance Co.
Captive
Reinsurer
LegalActuarial
AccountingBanking
Claims
Loss Control
Long Term Stabilization Performance – Wisconsin Insurance Co.Workers Compensation Effective Cost Rate (As of 12/31/2015)
Transparency & Control
• Owner of Insurance vs. Buyer • Participate with Like-Minded Businesses
• Either Heterogeneous or Homogeneous• Transparency & control over who you share risk with
• Share risk in severity losses, which helps stabilize costs
Risk Sharing Spectrum – Who Benefits? Standard Market
Provides competitive pricing for business with poor performance because it is a larger pool of risk. Volatility in pricing based on hard and soft markets
Captive Members
Partner with business committed to safety to own a transparent insurance program. Loss sensitive pricing and leverage group purchasing power.
Care Care Some Don’t Care
Time Commitment
Board Meetings & Risk Management Workshops
Board of Directors
Risk Control Finance Underwriting
Heterogeneous vs. Homogenous
• Non-Industry Specific • 5 Captives including 1 rent-a-captive • Wisconsin Captive- designed for WI domiciled businesses
Industry Specific
• 5 Captives • Transportation (TRIP), Warehousing & Logistics (IWLAIC), Construction (NewCon),
Mechanical & Electrical Contractors (STIC), Food Related Services (Harvest)
EMPLOYEE BENEFITS CAPTIVE
Who is an Ideal Fit for a Group Captive?
• 50-900 employees • Commitment to employee engagement & wellness• Long term mindset • Fully insured or self-funded
Reasons to Evaluate Employee Benefits Captive • Self fund in a more stable environment
• Take advantage of the law of large numbers, while self-funding• Increased control in the working layer of risk • Flexible Program Structure • Impact cost drivers through collective risk management & wellness
programs
Specific Coverage
Self-Insured Employer Retention
(Per Individual Per Year)
$50,000
(for example)
Insurance Carrier Policy
Carrier Retained Excess
CaptiveSharing Fund
$300,000(for example)
$50,000
$300,000
$ Above
Next Steps
• Engage HNI/Artex to put together a conceptual indication/historical analysis
• Review Conceptual Indication • Submit for Approval• Final Approval & Bind Coverage • Start 6-8+ weeks prior to renewal date
QUESTION & ANSWER
APPENDIX
Loss Scenarios 3 Small Losses Totaling $75,000
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund$80,000
Frequency Fund$210,000
75K
$0
15K 30K 30K
Frequency Fund
Severity Fund
Initial 210,000 90,000 Fund BalanceClaims (75,000) 0
Balance 135,000 90,000 260,000
Loss Scenarios Add Moderate Loss3 Small Losses Totaling $75,000, Add $150,000 Claim
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund$80,000
Frequency Fund$210,000
$0
15K 30K 30K75K 100K
50K50K 150K
Frequency Fund
Severity Fund
Initial 210,000 80,000 Fund BalanceClaims (75,000) 0
Balance 135,000 90,000Claims (100,000) (50,000)Balance (35,000) 40,000 (75,000)
Loss Scenarios Catastrophic Loss3 Small Losses totaling $75,000, Add $150,000 Claim, Add $1,000,000 Claim
$0
Reinsurer
$1,000,000
$350,000
$100,000
Severity Fund$90,000
Frequency Fund$245,000 15K 30K 30K
150K
100K
15K
1MM
350K
275K 100K
250K
600KReinsurer
Severity Fund$80,000
Frequency Fund$210,000
Loss Scenarios 3 Small Losses totaling $75,000, Add $1,000 Claim, Add $1,000,000 Claim
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund$80,000
Frequency Fund$210,000
Frequency Fund
Severity Fund
Initial 210,000 80,000 Fund BalanceClaims (275,000) (300,000)
Balance (65,000) (220,000)LEC (Bill) 65,000Shifted out in Severity Layer 220,000Balance 0 0 0
Loss Experience Charges
• When losses > frequency fund• Creates accountability within
• Each member responsible for predictable, preventative losses
• Billing is staged to ease cash flow
Loss Experience Charges
How Billing Works – Ex: $50,000 Loss Experience Charge
$12,500
$12,500 $6,250
$6250
$6250
$6250
LEC
Collateral - Fixed Calculation
• 2/3 frequency fund ($210,000) over a 3 year period, not to exceed 2x frequency fund in the current year
• Ex: Assume frequency fund amount did not change
Year 1 Year 2 Year 3 Year 4
$140,000 $140,000 $140,000 $140,000
