Group captives: who qualifies.

How a group captive works

A group captive is an insurance company owned by the businesses it insures. Twenty to several hundred mid-size companies, often in related industries (trucking, construction, manufacturing, distribution), each buy shares in a licensed captive domiciled in a place like Vermont, the Cayman Islands or Bermuda. A fronting insurer issues the actual policies so certificates, filings and state requirements look exactly like a traditional program. Behind the front, the captive reinsures the predictable layer of losses and buys reinsurance for the catastrophic layer.

The result is that a well-run company stops paying for the claims of worse-run companies in a traditional insurer's pool, and starts keeping the difference between the premium it pays and the losses it actually has.

Where the money goes

A typical member premium is split into three parts:

• Loss fund (roughly 60 to 70 percent). Set from the member's own five-year loss history, actuarially projected. It pays the member's claims up to a per-claim retention, commonly $250,000 to $500,000. What the member does not spend is returned, with investment income, as claims close.
• Reinsurance and risk sharing (roughly 15 to 25 percent). Buys protection for claims above the retention and funds the shared layer where members support each other on unusually bad years.
• Operating costs (roughly 10 to 20 percent). Fronting fees, captive management, claims handling, loss control, taxes, and broker compensation.

Compare that to a traditional guaranteed-cost policy, where the insurer keeps the entire premium regardless of your losses, and the attraction is clear for a company with a loss ratio well under the industry average. For a company with average or worse losses, there is nothing to get back, and that is the point of the fit review.

Who actually fits

Programs vary, but the profile that works looks like this:

• Premium size. Roughly $150,000 or more in combined casualty premium (workers' compensation, general liability, commercial auto). Many programs prefer $250,000 and up; a few accept less. Below the threshold, fixed costs eat the savings.
• Loss record. Five-year loss ratio meaningfully better than your industry's average, with no pattern of large claims. One bad year with a clear cause is explainable; a trend is not.
• Financial strength. The ability to post collateral and absorb a bad year without strain. Captives want members that will still be there in year five.
• Management commitment. Owners who treat safety, driver selection, return-to-work and claims management as operating disciplines, because in a captive every dollar of loss is the member's dollar.
• Time horizon. Willingness to commit for three to five years minimum. The economics compound; the first year is rarely the best.

Trucking fleets with strong safety data, contractors with mature safety programs and manufacturers with stable workforces are the classic candidates. Companies that fit tend to know they are subsidizing others already; the captive conversation usually confirms it.

Collateral, assessments and the words brokers skip

The downside is real and should be stated plainly.

• Collateral. Members secure their loss fund with a letter of credit or cash, often a significant share of the first-year loss fund, building over the first few years. It is your capital tied up, and it is released as claims close.
• Assessments. If your losses exceed your funded layer, you can be assessed additional premium, up to a stated maximum. In a true group captive you also share a defined slice of other members' excess losses.
• Exit. Leaving means your collateral stays until your claims close, which can take three to five years for workers' compensation. Plan to join for the long term or not at all.
• Cash flow. Returns arrive as claims close, not at policy expiry. Year one often feels like paying more, not less.
• Governance. Members sit on the board and vote on new members, reinsurance and dividends. It is a real responsibility with real meetings.

When to say no

A captive is the wrong answer when:

• Your losses are average or worse. You would be funding your own claims plus the program's costs.
• Your premium is under the program's threshold and the fixed costs would swallow the savings.
• You cannot comfortably post collateral or absorb an assessment.
• You expect to sell the company or change ownership within a few years and want a clean exit.
• You want the certainty of a fixed annual cost more than you want the upside. That is a legitimate preference.

We tell clients this directly because a captive that does not fit becomes an expensive, slow-moving mistake, and because our compensation does not depend on the answer.

What a fit review looks like

1. Five years of loss runs and current premiums for workers' compensation, general liability and auto.
2. A loss-ratio and large-loss analysis against your industry benchmark.
3. A side-by-side projection: expected five-year cost in the traditional market versus a captive, including collateral, under good, expected and bad loss scenarios.
4. If the numbers work, introductions to one or two programs whose members look like you, and a walk-through of their shareholder agreement and assessment terms.
5. If they do not, we say so and keep you in the traditional market with the best terms we can find.

Start on the group captive programs page or call (332) 333-2353 for a confidential review.

Frequently asked questions

What is a group captive?

A licensed insurance company owned by its member businesses. It pays the members' predictable claims, reinsures the large ones, and returns underwriting profit and investment income to the members.

How much premium do I need?

Usually $150,000 or more in combined casualty premium, with many programs preferring $250,000 and up, plus a five-year loss ratio better than your industry's average.

What are the risks?

Collateral, possible assessments if losses exceed the funded layer, some sharing of other members' losses, and a multi-year exit while claims close.

General information, not an offer to sell securities or a recommendation to join any specific program. Captive participation involves collateral, potential assessments and multi-year commitments and is not suitable for every business. See our captive disclosure.