Maximizing Captive Value Through Teamwork

1. Maximizing Captive Value Through Teamwork

2. Maximizing Captive Value Through Teamwork Speakers: • Irena Kaler, Executive Director/CAO, RWJ Health Network Insurance Services • Ken Rand, Managing Director, Marsh Inc. • Catherine Sheridan, Partner, Tax, KPMG • Chris Kogut, Principal and Consulting Actuary, Milliman Moderator: • Lawrence Bird, Managing Director, Marsh Bermuda

3. Overview • Many resources are involved in establishing, managing and developing a captive. • This discussion aims to show how the value of these divergent resources can be reaped to produce a powerful and efficient team to move your captive forward. • We will show how to maximize captive value through teamwork.

4. How Does A Captive Start? There are many reasons to consider establishing a captive The team involved initially may include: - captive owner/parent company - captive consultant - insurance broker - reinsurance broker - actuary - tax consultant - finance and accounting - legal advice

5. How Does A Captive Start? Once the decision is made to proceed and the domicile is selected, the following might be involved to incorporate the captive: captive owner/parent company captive manager lawyers regulators

6. How Does A Captive Grow? Once incorporated and underwriting the planned business there will almost always be a need for ongoing development. For this to occur, the following resources might be used: - captive owner - captive manager - actuary - insurance broker - reinsurance broker - tax consultant - legal counsel - investment manager - regulator

7. Why Is Ongoing Development Important? Opportunities need to be identified for the benefit of the captive and its owners. Without teamwork and proper consultation, opportunities will be missed instead of being maximized: - insurance markets change - regulations change - laws change - risks change - investment markets change eg. fixed income and equity markets changes in captive owner’s business, operations or corporate structure

8. Who Makes Up The Team? Captive Owner Fronting Companies Captive Manager Officers and Committees Actuary Captive Board of Directors (Re)insurance Brokers Investment Manager Regulators Lawyers/ Corporate Secretaries TPAs/Claims Handlers Banks/ Treasury Tax consultant Auditors

9. How Are The Roles Linked? RISKS STRATEGY Captive Owner (Re)insurance Broker

10. What Are Their Roles? Captive owner – share objectives with the team Everyone else – understand those objectives and partner with the captive owner and each other to achieve those objectives and more - captive owner - captive manager - insurance broker - actuary - tax consultant

11. The Captive Owner’s Role on the Team Keep the team informed – begins with the vision for the captive changes, needs, challenges facing primary business create understanding and alliances with on-shore, in-house advisors Create relationships select vendors and consultants wisely understand the contributions of each team member know what you don’t know – ask the experts Utilize the Board’s talents keep the Board informed leverage their talents, expertise, knowledge in strategic ways

12. The Captive Owner’s Role on the Team Stay involved regular contact with captive manager and “key” advisors expectations met? Deliverables timely? ask questions; exercise oversight are you getting what you pay for? Is the captive “working” to advance your primary business needs? Don’t be an absentee landlord!

13. The (Re)insurance Broker’s Role on the Team

14. The (Re)insurance Broker’s Role on the Team Analyze exposures of insured/policyholder Provide placement services in the commercial (re)insurance market Identify markets Negotiate terms and conditions Present to insured / policyholder Advise on market capacity and conditions Communicate developments in the industry Provide policy reviews Provide client contract reviews (insurance requirements)

15. The (Re)insurance Broker’s Role on the Team Provide claims handling and settlement services Provide claims reporting services Assist in market collections Identify alternative forms of capital financing Provide placement services for fronted (re)insurance arrangements Contract certainty Credit security of (re)insurers

16. The Actuary’s Role on the Team Provide the “numbers” to make informed decisions Explain the risks and risk factors in insurance programs Highlight the uncertainty in future events Assist the captive board, owners and regulators in evaluating the captive’s solvency Protect insured/policyholder Communicate developments in the industry

17. Examples of Actuarial Involvement Reserve analysis and statement of actuarial opinion Funding/premium projections Retention analysis Strategic financial planning Claims management reviews Risk transfer opinion Premium allocation Capital adequacy reviews

18. The Tax Consultant’s Role on the Team Strongly recommend tax advisor be included in the Due Diligence Process Tax Advice needed PRIOR to establishing the Captive Planning needed to obtain tax objectives/efficiencies U.S federal income tax implications/structuring International tax implications/structuring

19. Examples of Tax Issues Withholding taxes Excise taxes - Direct/Reinsurance - Cascading State income/premium/procurement taxes Cell legislation Tax Compliance Reporting, including - Informational returns - FBAR

20. The Captive Manager’s Role on the Team Understand the captive owner’s objectives, business and corporate structure Ensure basic management services are provided Provide relevant expertise especially financial management and insurance Compliance with regulations Regulatory updates and developments New opportunities and developments; the manager must be up-to-date and, also, provide innovative ideas Co-ordination of the team

21. Which Roles Are Generally A Requirement For Success? Captive owner Board of directors Captive manager Insurance broker Actuary Tax consultant Corporate secretaries Auditors Third party administrators

22. Who Has Responsibility? Everyone has responsibility for their specific areas, but should not operate in silos Communication is always key Understand the captive owner’s business, needs and objectives to contribute maximum value Survey the landscape – opportunities, changes in legal and regulatory environment etc. Captive manager is the gate-keeper to maximum success through co-ordination and team facilitation Captive owner is the end point. Is your captive a strategic asset or a headache? You insure success.