Telephone. Computer Microphone. Technical Support. Participation. Virtual Classroom Communications

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1 Telephone Call access code (ICCIE) You will automatically be muted. Distinguished Scholar Sponsor State Founding Sponsor When called on, un-mute your phone by pressing *6 Founding Partner Domicile Partner Session 4 / 1 When finished toggle *6 again Session 4 / 2 Computer Microphone Hold the TALK button down on your computer OR use the CTRL key on your keyboard to enable your microphone. Virtual Classroom Communications Audio/Telephone Use the hand raising feature to get in the queue Chat Area Type in responses in chat box Yes / No Use the Yes/No feature to give quick replies Session 4 / 3 Session 4 / 4 Participation Attendance to web-conferences Participating in web-conferences Volunteer Ask questions Answer polling questions Participating on the homework board Complete homework Respond to other students Technical Support Call and identify yourself as a University of Vermont conference Session 4 / 5 Session 4 / 6 1

2 Session 4 Overview Captive Options and ART Session 4 Pure Captives Sponsored Captives Reinsurance Self Insurance Session 4 / 7 Session 4 / 8 Pure Captive... What is it? A captive insurance company that has as its primary business purpose the insurance of the risks of its parent company (i.e., majority shareholder) and affiliates (i.e., brother-sister subsidiaries). Pure Captive Basic Structure Subsidiary A Parent Company Subsidiary B Pure Captive Insurance Co. Session 4 / 9 Session 4 / 10 Pure Captive Examples Cook Insurance Co., Ltd., the captive insurance company formed by Dart & Kraft, Inc. and later owned by Premark International, was used to insured the company s global property exposures. Pure Captive Examples cont. Circle Tree Insurance Company, a Vermont captive formed by International Paper Company to insure various risks, including employee benefits. Session 4 / 11 Session 4 / 12 2

3 Rent-a-Captive... What is it? Rent-a-Captive An arrangement in which a captive insurer "rents" its facilities to an outside organization, thereby providing the benefits that captives offer without the financial commitments that captives require. Participant A Facility Owner 100% of stock Rent-a-Captive Participant B Session 4 / 13 Session 4 / 14 Sponsored, Protected Cell Captive: a hybrid Sponsor Sponsor... What is it? 100% of stock Sponsored Captive Participant A Cell A Cell B Participant B Session 4 / 15 Session 4 / 16 Participant... What is it? An insured that utilizes a captive insurance company through a specifying the terms of participation, rather than through a shareholder or member. Sponsored Captive Participant Example A group for not-for-profit agencies are self-insuring risks on a group basis, by participating in a protected cell in Northgroup Sponsored Captive Insurance, Inc., a Vermont sponsored captive insurance company Session 4 / 17 Session 4 / 18 3

4 Industrial Insured Captive Insurance Company: What is it? a captive formed and owned by an industrial insured group to insure the risks of the each of the industrial insured group members. Industrial Insured Captive Insurance Company: What is it? cont. an industrial insured is any business that: (i) has a full-time employee as an insurance manager or buyer; (ii) spends at least $25,000 annually in insurance premiums; and (iii) has at least 25 full-time employees Session 4 / 19 Session 4 / 20 Producer-owned Reinsurance Company... What is it? A captive or rent-a-captive owned is used by an insurance broker or managing general agent, which reinsures selected risks that it produces for the purposes of retaining the underwriting income. Reinsurance Pool... What is it? A risk financing mechanism used by insurance companies to increase their ability to underwrite specific types of risks. The insurer cedes risk to the pool under a treaty reinsurance agreement. Session 4 / 21 Session 4 / 22 Self-insurance Pool... What is it? A legal entity regulated by the states that allows unrelated insureds to retain their own risks and collectively purchase claims administration services and excess insurance to meet statutory coverage requirements. Self-insurance Pool Examples The Greater Portland V, an organization providing underwriting, claims and loss prevention management for unrelated self-insured organizations in Portland, Maine. Session 4 / 23 Session 4 / 24 4

5 End of Chapter Poll With what you now know, what type of captive structure do you think would be best for Plastics, Inc? Pure? Rent-a-captive? Sponsored, protected cell? Industrial insured? PORC? End of Chapter Discussion What are the reasons for your recommendation? Raise your hand in HorizonWimba to respond by audio. Session 4 / 25 Session 4 / 26 Question and Answer Questions to this point. Raise your hand in HorizonWimba to respond by audio. Homework Participate in the two-week discussion held in WebCT. Specific instructions are available in WebCT. Remember, completing homework assignments and participating in the online discussions represents 10 points toward the final exam. Session 4 / 27 Session 4 / 28 Homework Week 1: 1. The first session's class presentation is more about risk management than captives, but that is to help you appreciate the context of captives as a risk management tool. Go back into the slides presented in the class and examine slide titled, "Alternative Risk Approaches Pros and Cons," and post on the Discussion Board your thoughts about what is listed here. Are there additional considerations, positive or negative, that should have been listed? 2. The IRS is challenging the favorable tax treatment of captive premiums, if the ability to deduct captive premiums is disallowed, how will this impact captive users? Will other risk financing alternatives become more attractive? What do you think would be the impact on captive formation and usage, and why? Due date listed on course calendar. Homework Week 2: 1. As individuals, answer the end of chapter discussion questions from Chapter 1 in the Captives and the Management of Risk textbook. 2. Respond to other student posts with additional questions or comments about their answers. End of chapter questions: 1. Based on what you know about the essential elements of captive insurance, would you say that XYZ LAC is a captive? Why, or why not? 2. If this is a captive, what type of captive is it? Explain your answer. 3. Based on the information given here, is XYZ Liability offering "ART" programs to its insureds? Discuss why or why not. Session 4 / 29 Session 4 / 30 5

6 Exam Please see WebCT for further exam instructions and dates. Participation Grade Proctor Form Exam in WebCT Session 4 / 31 6