The Vermont Captive Insurance Association (VCIA) conference kicked off with a comprehensive panel discussion on setting up a captive.
'Captives 101: Making the Right Play' featured a case study on Astro Manufacturing. The company has 12 subsidiaries, annual revenue of $300 million and exposures in several areas, including warranty coverage and environmental risk.
To set the scene, Sandra Bigglestone of the Vermont Department of Financial Regulation said that the company is considering setting up a captive—Astro Risk Management—because it wants to improve the allocation of costs to its subsidiaries, consolidate its risk management activities and reduce costs through tax savings.
The panel, which included John Prescott of Johnson Lambert, Andrew Sargeant of USA Risk Group and Brian Johnson of Bartlett Acturial Group, focused on key areas of the formation process.
Setting up a captive would make sense for Astro Manufacturing because of the way it is structured, according to Sargeant. He said: “Using a captive can allow you to have stricter control of risk management across subsidiaries.”
Prescott outlined how captive companies are designated under US law. He said that more than half of the captives that his company works with are insurance companies under US law. If Astro Risk Management is designated as an insurance company, it would receive tax benefits sooner than those with a different designation, he said.
When a captive application is submitted to a regulator, it must include a comprehensive business plan that would be used to regulate it, according to Bigglestone. The business plan must include financial projections, information on line coverage and details on how the captive will be capitalised.
She added: “It's really the face-to-face time that's important to us, so that we can get to know the captive and they can get to know us.”
