Types of Captives Flashcards
Name the 4 Captives
- Well Health
- Partner Health
- Transcend Health
- Foundation Health
Well Health
1. Renewal Date
2. Established
3. Policy Issuing Carrier
4. Captive Retention
5. Captive Enrollment
6. Stop Loss Deductible Range
7. Max Assesment
8. Underwriting Requirements
9. Aggregate Coverage
10. Capitilzation
11. Collateral
- 10/01
- 2011
- Berkley
- $350,000
- Over 75 ee’s already self funded
- $25,000-$500,000
- 50% of loss fund
- Min 2 years loss history
- Optional
- $20,000
- 50% of the loss fund for two years
Partner Health
1. Renewal Date
2. Established
3. Policy Issuing Carrier
4. Captive Retention
5. Captive Enrollment
6. Stop Loss Deductible Range
7. Max Assesment
8. Underwriting Requirements
9. Aggregate Coverage
10. Capitilzation
11. Collateral
- 2/01
- 2019
- Berkley
- $200,000
- Over 50 employees, Fully insured
transitioning to self-funded - $25,000-$500,000
- 20% of Loss Fund
- 3 years of fully insured renewals
- Mandatory
- $20,000
- 20% of the loss fund for two years
Transcend Health
1. Renewal Date
2. Established
3. Policy Issuing Carrier
4. Captive Retention
5. Captive Enrollment
6. Stop Loss Deductible Range
7. Max Assesment
8. Underwriting Requirements
9. Aggregate Coverage
10. Capitilzation
11. Collateral
- 10/01
- 2021
- Skyward
- $150,000
- Over 75-500 employees, Self Insured or Fully Insured
- $20,000-$250,000
- 25% of loss fund
- Min 2 years loss history
- Optional
- $20,000
- 25% of loss fund for two years
Foundation Health
1. Renewal Date
2. Established
3. Policy Issuing Carrier
4. Captive Retention
5. Captive Enrollment
6. Stop Loss Deductible Range
7. Max Assesment
8. Underwriting Requirements
9. Aggregate Coverage
10. Capitilzation
11. Collateral
- 9/01
- 2023
- Tokio Marine
- $200,000
- Over 50 employees, self funded or fully insured
- $25,000-$250,000
- 25% of loss fund
- 2 years of loss history or 3 years of Fully Insured Renewals
- Optional
- $20,000
- 25% of loss fund for two year
What Do We Do at CRI?
- We provide education to brokers and prospects
- Army of CPA’s on staff (help with Q’s and audits)
- Travel dept plans and coordinates 90 board meetings and 90 workshops
What is the Max Cost?
- Premium (stop loss premium)
- Aggregate Attachment Point (120% of expected)
- Assessment (20% of loss fund, 50% in well health)
How Does Assessment Work?
6 months after policy year
Amount you go over
Each captive has set percent
Percent of loss fund
How is captive monitored in Cayman Islands?
CIMA (Caman Island Monetary Authority)
What is average annual rate of return in CIF
5%
Who is EY?
Tax firm in Chicago. If member gets audited, then EY can step in and help
Operating Account Bank
Scotiabank if you wire money we use Scotiabank
Berkley Underwriting - 2 types
- Experience Writing. 24 months of claims data. Aggregate claims and high cost claims.
- No data, then current reneal and last two years. They prefer no more than 20% increase
AI Underwriting Needs
Member level census
What does it take to get in $
20k. 2 shares
Common share - 1 vote (technically worth $100)
Preferred share - mechanism that allows those shares to go back to investor based on performance (minus any risk sharing plus any investment income)
What does capital get invested in?
What is the 20k considered?
CIF
Asset. sits on balance sheet. if you leave, you get this back
What is the money you make on investment considered?
Ordinary income. you are taxed on this. No capital gains
Collateral
Protects members from one another
1st month premium
letter of credit or cash
Aggregate Stop-Loss
Stop-loss coverage that provides protection for the employer against the accumulation of total claims for the group as a whole exceeding a stated level (aggregate attachment). The aggregate attachment amount is per employer, per year.
Protection against abnormal frequency of claims in total rather than abnormal severity of a single claim.
Specific Stop-Loss
This coverage protects against large, catastrophic claims incurred by a single individual (per person, per year). Individual stop-loss reimburses the employer when claims for an individual exceed a specific deductible.
Aggregate Attachment Point
After underwriter determines aggregate, they will build in another 20% corridor which beocmees your aggregate attachment point
Spec is?
Aggregate is?
Spec is large
Agg is many
Spec protects employer against large claims
What is a captive?
Group of organizations that come together to form their own reinsurance company to take a defined layer of risk. The company is owned and controlled by the particpating companies. ownership of the layer
Contracts Partner Health
1. First year options
2. Shortest
3. Longest
4. At renewal
- 12/12 or 12/15
- 5 months (september)
- 16 months
- 24/12
TLO Contract
Terminal Liability Option (protects if someone goes back to fully insured)
Contracts Well Health
1. First year options
2. Shortest
3. Longest
4. At renewal
- 12/12 or 12/15
- 5 months (september)
- 16 months
- 24/12
What types of investments does CIF do?
50% high grade bonds
50% very well diversified in marketplace
well diversified and conservative mutual fund
Collateral 3 Functions
- member to member protection
- capitilizes the captive (insurance co needs reserves to pay claims)
- collateralizes policy issuing carrier (Berkley needs to know captive can pay claims in the captive layer)
Traditional Insurance Investment Vehicle. What do they invest?
reserve or collateral requirements
Captive Committee Structure (4 committees)
Executive Committee
Finance Commiteee
Risk Management Committee
Underwriting Committee
Why domiciled in Grand Cayman
- Infrastructure
we have over 38 years operating captives in Cayaman. 1st captive formed, states weren’t as willing to allow these structures. - Ease of regulation
Cayman 2nd largest. bermuda 1st. they regulate captives heavily, but are set up to be friendly environement
Kensington
- Offshore management co. handles day to day operation of all captives
- keep all official records of the captive
- work with audit firm
- work with members when they come into program. sign docs. director docs
- prepare financial statements for board meetings
- pay license fee to CIMA
- Send out collateral letters
- background checks on shareholder
- pay dividend distribution
- funding dollars back to Berkley when losses need to be paid
- minutes for board meetings
Kensington - how many employees
55
half are cpa equivalant
Board Meeting and Workshop months
1. Well Health
2. Partner Health
3. Transcend
4. Foundation
- Board March - Workshop August
- Board June - Workshop
- Board Feruary
4.
3 Important Things to Consider when moving to self insured
- TPA
- PBM
- Network
Potential Savings with RBP
10-20% on spec and agg claims
Lower Spec Deductible (what happens to premium and loss fund)
Higher Spec Deductible (what happens to premium and loss fund)
- Higher stop loss premium, more $ ceded to loss fund
- Lower stop loss premium, less $ ceded to loss fund
Risk sharing in partner health?
Well Health?
Historical percentage?
11%
8%
Keeping Berkley Honest
**Because of transparency on how reinsurance is working, Berkley can’t overprice anything. Members know dollars spent, Berkley knows that we know. They know that they have to price the renewals fairly because we have the data to back it up. If members ever thought that Berkley wasn’t pricing fairly, they could vote to change the stop loss provider. It’s in Berkley’s best interest to continue to be a good partner.
if we shopped the stop loss and decided to move to a different carrier, we don’t know how they are going to price it. If they tried to overprice it, that’s when the members will start shopping it.
Largest client in Well Health
3000+
Assessment vs dividend in Partner Health %
20% of members in assessment, 80% in dividend
always going to be some element of risk sharing
reason you joined is long term. Lont term you are going to win more than you are going to lose
Benefits of larger program?
spread the risk
reduce volatility
makes your renewal more predictable
How to present collateral
sits as an asset on the books
not cost of benfeits
cost of ownership in captive
investment income
How to answer question - what’s the difference between self funding and captive? Doesn’t seem like it makes sense to move to captive
- Now 50-60% of what you pay in premium you can get back when you have good years.
- The other big thing, is because the captive owns the first 200k of risk. You now get to see how the reinsurance is performing. If you go traditional stop loss you are going to pay premium, and you don’t get to see anything of how their block is performing. You don’t know who you are sharing risk with, you don’t know how they come up with the renewal calculations, there is no transparency in the reinsurance layer. You get to see all your claims below spec all your aggregate claims, you get to see all of that. But you don’t get to see anything in the reinsurance. Now you get everything.
- Berkley study?
Typical PBM spend
used to be around 15%. Now we see as high as 40%. Average 25-30%
Berkley Edge
employer resource. identify large claims. help head them off. help head off claims in reinsurance layer.
Average member dividend in Well Health
16% of total premium
Dividends in Well Health? Partner Health?
9.8 million
800k
What if prospect is currentely with Berkley?
Need a note from CFO saying that they are interested in looking at Well Health
How is captive monitored in the Caymans?
CIMA (Caman Island Monetary Authority)
Average participation of board meetings
80%
Who is Berkleys largest customer?
Captive Resources
Berkley standard captive underwriting team name
EMCAP
Renewal rate in partner health that is too high for berkely?
20%
How is investment income taxed
ordinary income. no captial gains
Express Scripts bought by Cigna?
42 billion dollars. Wasn’t bought for cigna to turn around and offer discounts and better fees. Bought to give shareholder a return
If there is a 12/12 contract, what can member expect at renewal?
18-20% increase before trend
Berkley Study
14% renewal traditional stop loss. 8% renewal captive
How are we different? (Pareto or other captive)
Don’t say what Pareto does or does not do. Just speak to what we do
1. member owned and controlled
2. Transparancy
3. Flexiblity
4. Collaborate with other members. like minded. workshops.
If you don’t use all the money in your loss fund, could you share risk and lose your entire loss fund?
Theoretically, yes. size of well health risk is super low. about 8% of risk sharing. made it through pandemic and it didn’t happen
Name of underwriting tool
1. Skyward
2. HCC
- Gradient
- Milimen Curv
Transcend TPA
must be an independent TPA. Except for UMR. They allow for breaking out of PBM
Renewal Rate Cap
1. Well Health
2. Partner Health
3. Transcend
4. Foundation
- 55%
- 55%
- N/A
- 45%
Max Assesment
1. Well Health
2. Partner Health
3. Transcend
4. Foundation Health
- 50%
- 20%
- 25%
- 25%
Aggregate Coverage in each captive?
optional in all except for Partner Health
Transcend TPA options?
all capties are open except for transcend. needs to be from approved list.
Pooled captive
Foundation
High performing network captive
Transcend
If taxed as a US entity?
Double taxed.
1. Captive as a company would get taxed as gains (profits)
2. Profits that are disributed would get taxed as income.
Foundation Health - how is it taxed
as a U.S. entity. There is only one share.
How to address 50% rate cap in Well Health (to broker)
There is no good guy in insurance.
members control claims within captive. still allows relatively flat renewal. wasn’t dollars that berkley paid out of reinsurance line. traditional self funded, those claims would have been paid by carrier and they would give you higher renewal
you could still be assesed and pay less (members have had this experience)
Operating Costs Well Health - 7
- Policy issuance and underwriting (Berkley) 10% total spec premium
- Reinsurance (Berkley) (vary as % based on spec deductible)
- Premium Tax and EFT federal excise tax (1% of ceded captive premium) because flowing offshore. Any dollars including assesment you will pay 1% excise tax
- Off Shore Expense Deferral (board meeting rooms, meals, stamps. kensington fee)
- Health Risk Management Fee (Wellness Fee). fund risk management workshop $750
- Innovu Fee $2,055
- Captive Resources Fee
under 100 $15,000
100-250 $17,500
250-500 $20,000
500+ $22,500
Operating Costs - Partner Health 7
- Policy issuance and underwriting (Berkley) 10% total spec premium
- Reinsurance (Berkley) (vary as % based on spec deductible)
- Premium Tax and EFT federal excise tax (1% of ceded captive premium) because flowing offshore. Any dollars including assesment you will pay 1% excise tax
- Off Shore Expense Deferral (board meeting rooms, meals, stamps. kensington fee)
- Captive Resources Fee 20k
Board of Directors
President
Vice President
Secretary
Treasurer
These positions are also called officers
Committees
- Finance Committee
- Health Management committee
- Membership Development Committee
Chairs and vice chairs
PBM
Smith Rx
Livinitie southern scripts
True scripts
TPA/Network
Allied
Aetna under 100 - meritain
United - UMR
ONLY TWO BUCCAS THAT DO GOOD
blue cross and Cigna sucks direct
Under 100 you have to look at Allied with Cigna
under 100 go direct to meritain
