Learn about how your business can improve its bottom line by taking more control of your insurance program. Mid-sized organizations can utilize alternative risk solutions, better known as captive insurance companies, to lower their total cost of risk for Workers Compensation, General Liability, and Auto Liability. Through ownership, businesses can reap the benefits of their strong safety performance.

1. GROUP CAPTIVE
OVERVIEW
How high-performing companies can lower
their cost of risk with a group captive.
&

2. Agenda
• Explain why companies utilize group captives
• Address common concerns
• Touch on how captives can be utilized for employee benefits
• Q&A
• Discuss next steps

3. Over 80% of Fortune 500
Companies utilize a captive
insurance company

4. Reduce Volatility
Share In Severity Risk
Group Purchasing Power
Owner Vs. Buyer
Greater control over
claims
Incentives for loss
control
Leverage With Service
Providers
Minimize
Insurance Cost
Control
Risk
Transparency
Stabilize
Costs
Reduce insurance cost
Capture underwriting profit
Loss Sensitive Pricing
WHY DO
COMPANIES USE
GROUP CAPTIVES
Unbundled program
Partner with like minded
businesses

5. “If you’ve seen one captive…
Then you’ve seen one captive”
Dave Provost, Department of Financial Regulation -
Vermont

6. Common Group Captive Structures
1. Casualty Group Captive – middle market businesses coming
together to leverage group purchasing power to drive down
fixed costs and share in severity claims
2. Employee Benefits – Allows middle market businesses to
self-fund in a more stable environment. Take advantage of the
law of large numbers & share in severity claims

7. Who is an Ideal Fit for a Casualty Group
Captive? (WC, GL & AL)
• $200k-$3M In Casualty Premium
• Loss Ratio < 50%
• Commitment to Safety & Loss Control
• Long Term Mindset
• Financially Secure

8. Reasons to Evaluate A Casualty Captive
• Loss Rated Premium
• Retain UW Profits
• Quantified Amount of Risk
• Unbundled Program
• Long Term Stabilization
• Transparency & Increased Control

9. Common Concerns
• Risk Appetite
• Risk Sharing
• Collateral
• Historical Experience

10. Premium Development
• Premium is developed based on the individual member’s loss
experience
Loss Fund
Determined based on
an independent
actuary’s review of
member’s premium,
exposures, and total
incurred losses for the
past 5 years
Fixed Costs
• “A” rated insurance
policy
• Reinsurance
• Risk Control
• Claims Admin.
• Captive Mgmt.
• Brokerage
• Taxes/Surcharges
Premium
60% 40%

11. Return of Underwriting Profit
Annual Premium Estimate: 500,000
Loss ratio Loss Level
Captive
Cost*
Est. Inv.
Income
Captive
Net Cost*
Gauranteed
Cost
Captive
Difference
0.00% 0 210,000 49,395 160,605 500,000 339,395 Best Case Scenario
10.00% 50,000 260,000 44,895 215,105 500,000 284,895
20.00% 100,000 310,000 40,395 269,605 500,000 230,395
30.00% 150,000 360,000 35,895 324,105 500,000 175,895
40.00% 200,000 410,000 31,395 378,605 500,000 121,395
50.00% 250,000 460,000 26,895 433,105 500,000 66,895
60.00% 300,000 510,000 22,395 487,605 500,000 12,395
70.00% 350,000 560,000 16,653 543,347 500,000 (43,347)
80.00% 400,000 610,000 9,153 600,847 500,000 (100,847)
90.00% 450,000 660,000 1,653 658,347 500,000 (158,347)
114.29% 571,432 781,432 0 781,432 500,000 (281,432) Worst Case Scenario (100% losses +fixed costs)
5 year Savings assuming a average loss ratio of 50% 334,475

12. Ability to Take a Quantified Amount of
Risk – Example Coverage Structure
Workers
Compensation
Employer’s
Liability
General
Liability
Auto Liability
Statutory
Sharing Fund (100K to 350K)
Member Fund (0-100K)
$1M
$350K
Captive
Retention
Aggregate
Reinsurance
Member’s Umbrella Policy

13. Unbundled Program Control and Accountability
Captive Board
Insured
HNI
Insurance Co.
Captive
Reinsurer
Legal
Actuarial
Accounting
Banking
Claims
Loss Control

14. Long Term Stabilization Performance –
Wisconsin Insurance Co.
Workers Compensation Effective Cost Rate (As of 12/31/2015)

15. Transparency & Control
• Owner of Insurance vs. Buyer
• Participate with Like-Minded Businesses
• Either Heterogeneous or Homogeneous
• Transparency & control over who you share risk with
• Share risk in severity losses, which helps stabilize costs

16. Risk Sharing Spectrum – Who Benefits?
Standard Market
Provides competitive pricing for business
with poor performance because it is a larger
pool of risk. Volatility in pricing based on
hard and soft markets
Captive Members
Partner with business committed to
safety to own a transparent insurance
program. Loss sensitive pricing and
leverage group purchasing power.
Care Care Some Don’t Care

17. Time Commitment
Board Meetings & Risk Management Workshops
Board of
Directors
Risk Control Finance Underwriting

18. Heterogeneous vs. Homogenous
• Non-Industry Specific
• 5 Captives including 1 rent-a-captive
• Wisconsin Captive- designed for WI domiciled businesses
Industry Specific
• 5 Captives
• Transportation (TRIP), Warehousing & Logistics (IWLAIC), Construction (NewCon),
Mechanical & Electrical Contractors (STIC), Food Related Services (Harvest)

19. EMPLOYEE BENEFITS CAPTIVE

20. Who is an Ideal Fit for a Group Captive?
• 50-900 employees
• Commitment to employee engagement & wellness
• Long term mindset
• Fully insured or self-funded

21. Reasons to Evaluate Employee Benefits
Captive
• Self fund in a more stable environment
• Take advantage of the law of large numbers, while self-funding
• Increased control in the working layer of risk
• Flexible Program Structure
• Impact cost drivers through collective risk management & wellness
programs

22. Specific Coverage
Self-Insured Employer
Retention
(Per Individual Per Year)
$50,000
(for example)
Insurance Carrier Policy
Carrier Retained
Excess
Captive
Sharing Fund
$300,000
(for example)
$50,000
$300,000
$ Above

23. Next Steps
• Engage HNI/Artex to put together a conceptual indication/historical
analysis
• Review Conceptual Indication
• Submit for Approval
• Final Approval & Bind Coverage
• Start 6-8+ weeks prior to renewal date

24. QUESTION & ANSWER

25. APPENDIX

26. Loss Scenarios
3 Small Losses Totaling $75,000
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund
$80,000
Frequency Fund
$210,000
$0
15K 30K 30K
Frequency
Fund
Severity
Fund
Initial 210,000 90,000 Fund
BalanceClaims (75,000) 0
Balance 135,000 90,000 260,000

27. Loss Scenarios Add Moderate Loss
3 Small Losses Totaling $75,000, Add $150,000 Claim
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund
$80,000
Frequency Fund
$210,000
$0
15K 30K 30K 100K
50K
150K
Frequency
Fund
Severity
Fund
Initial 210,000 80,000 Fund
BalanceClaims (75,000) 0
Balance 135,000 90,000
Claims (100,000) (50,000)
Balance (35,000) 40,000 (75,000)

28. Loss Scenarios Catastrophic Loss
3 Small Losses totaling $75,000, Add $150,000 Claim, Add $1,000,000 Claim
$0
Reinsurer
$1,000,000
$350,000
$100,000
Severity Fund
$90,000
Frequency Fund
$245,000
15K 30K 30K
150K
100K
15K
1MM
350K
100K
250K
600KReinsurer
Severity Fund
$80,000
Frequency Fund
$210,000

29. Loss Scenarios
3 Small Losses totaling $75,000, Add $1,000 Claim, Add $1,000,000 Claim
$1,000,000
$350,000
$100,000
Reinsurer
Severity Fund
$80,000
Frequency Fund
$210,000
Frequency
Fund
Severity
Fund
Initial 210,000 80,000 Fund
BalanceClaims (275,000) (300,000)
Balance (65,000) (220,000)
LEC (Bill) 65,000
Shifted out in Severity Layer 220,000
Balance 0 0 0

30. Loss Experience Charges
• When losses > frequency fund
• Creates accountability within
• Each member responsible for predictable, preventative losses
• Billing is staged to ease cash flow

31. Loss Experience Charges
How Billing Works – Ex: $50,000 Loss Experience Charge
$12,500
$12,500
$6,250
$6250
$6250
$6250
LEC

32. Collateral - Fixed Calculation
• 2/3 frequency fund ($210,000) over a 3 year period, not to
exceed 2x frequency fund in the current year
• Ex: Assume frequency fund amount did not change
Year 1 Year 2 Year 3 Year 4
$140,000 $140,000 $140,000 $140,000

33. Thank you
J.D. Seymour
630.438.1577
jd.Seymour@artexrisk.com