You must first clearly establish the financial and business goals and objectives of the company through effective communication between senior management, including CFO, risk manager and business unit heads. Together, consider the follow aspects of your company:
- Background and financial goals
- Actuarial or data issues, including loss data or exposure information needed, insurance company expense loads
- Reinsurance marketplace potential
- Tax and regulatory issues
Desired captive design
Several parameters can assist you in determining whether a captive is a viable option:
- You must be financially stable and have a good loss history.
- Captive expenses should be below 20 percent of premium, unless there is a compelling reason for a higher ratio.
- You must be able to demonstrate your ability to pay for claims and secure future losses.
- You must be able to dedicate considerable attention to the operation of the captive.