Frequently Asked Questions
Why form a captive cell under Green Mountain?
If you are looking for a way to insulate yourself from the harsh conditions of the “traditional” insurance market, forming a captive can help you take control of your insurance program and its costs, while providing superior coverage. Put simply, a captive provides you with more stability in pricing and insurance availability. Therefore, if you find that the “traditional” insurance market is prohibitively expensive, poorly matched to your needs, or the coverage you need isn’t available at all, a captive may be right for you. With our Vermont rent-a-captive solutions, you can provide coverage for difficult risks and tailor that coverage to fit your exact needs, retain the related underwriting profits for yourself, while limiting upfront cash commitments.
What differentiates Green Mountain’s approach to insurance from the “traditional” insurance market?
We offer you premiums based on your actual loss history, risk control and safety services tailored to your needs, opportunities for your involvement in claims management, and coverages not available from the “traditional” insurance market through our extensive network of fronting companies, insurance and reinsurance markets, and captive insurance service providers.
Am I putting my organization at risk of ruin by starting a captive?
Absolutely not, Green Mountain’s cell captives are customarily structured in partnership with a licensed and admitted insurance company. The fronting company retains or separately a reinsurance company or panel of reinsurance companies reinsure any catastrophic losses, so the captive’s overall risk remains manageable within your risk tolerance. Generally, your captive will only take reasonable levels of risk in within the more predictable primarily loss layer(s).
Will my assets be protected from the liabilities of the other captive cells operating under Green Mountain?
Yes, your assets will be legally separated or protected, meaning that your assets may not be used to pay the liabilities or claims of another cell operating under Green Mountain unless you have entered into a separate agreement to do so. Your assets will be kept in your own walled-off cell and will only be exposed to the risks of your own underwriting performance.
Why is it generally necessary for a captive to have a policy issuing or “fronting” company?
“Fronting” refers to the use of a licensed, admitted insurer to issue an insurance policy on behalf of the captive.
Generally, captives use a fronting company to satisfy the laws imposed by the states where the risks reside. Certain types of coverages, such as automobile liability and workers’ compensation, require evidence of insurance from an admitted insurer. So, the captive, which is a non-admitted insurer, contracts with a fronting company that is licensed and admitted to write coverage in the states it wants policies issued in on its behalf. The captive then reinsures the fronting company and assumes the risks and related losses, though the fronting company may retain or separately a reinsurance company or panel of reinsurance companies may assume any portion of those risks that are outside of the captive’s risk tolerance. If you’re a group looking to insure your members’ casualty or liability risks, however, we can setup a Risk Retention Group captive cell for you under the Federal Liability Risk Retention Act, so you can directly write insurance for your group on a nationwide basis without the need for a policy issuing or “fronting” company.
Why do I have to post collateral? What forms of collateral are accepted?
You are required to post collateral to provide additional funds to your captive program’s policy issuing or fronting company to secure your obligations to them if your losses exceed your premiums, so they’re not left holding the bag. You may post letters of credit or cash as collateral. Cash collateral typically earns investment income, whether it is held by the fronting company or directly by your captive in a trust account for the fronting company’s benefit.
When can my captive pay out dividends if it generates excess surplus?
When declared by your captive’s Board of Directors if your cell is incorporated, or by Green Mountain’s Board of Directors upon request if your cell is unincorporated, subject to regulatory approval by the Vermont Department of Financial Regulation.
Will profitability result in a decrease in premium rather than dividends?
Over time, the premiums you pay into your captive should decrease if losses are less than the amount of your captive’s available loss funds – that is net premiums after expenses. Conversely, if losses exceed such funds, your premiums will increase. If the Board declares a dividend, you may choose to use this cash toward your ongoing premium costs.
Will my captive program be required to pay Federal Income Taxes if the owner or owners are otherwise tax-exempt, e.g., charitable organizations, churches and religious groups, municipalities, etc.?
Not necessarily, structures may be available to manage tax exposure for tax exempt entities. For example, we can structure your group captive cell as what’s called a “reciprocal exchange” whereby your members exchange insurance contracts under a Subscriber’s Agreement – where they essentially agree to insure each other with the resulting underwriting income or savings being fully deductible by your captive upon the crediting of such savings to the Subscriber’s Savings Accounts of each member. Your subscribing members would then treat these credited savings as paid dividends, which are not otherwise taxable to them to begin with because of their tax-exempt status. A special attorney-in-fact common to all subscribing members acts as the agent to effectuate this arrangement.
How do you charge for your services?
Generally, we charge fees for your use of our “core capital” and access to our protected cell facility and certain of its services. The fees may either be an annual fixed dollar amount, adjusted for inflation, or a nominal percentage of your captive program’s premiums, subject to certain minimum and maximum dollar thresholds. Our partners at Strategic Risk Solutions (“SRS”), typically charge a fixed one-time fee for their feasibility and implementation work in relation to the startup of your captive, and on an ongoing basis, they assess fees commensurate to the captive management work required. SRS’s fees may be bundled together with our fees or charged separately to you on an a la carte basis – you decide.
Do I get to select the service providers for my captive program?
We engage the auditors and coordinate their required audit services, while our partners at SRS exclusively provide day-to-day management to all of the cells operating under Green Mountain. You, however, are free to select your preferred provider for all other services that may be required to operate your captive program (actuarial, banking and investment, claims administration, legal, tax preparation, etc.), with the cost of those services being paid by your captive cell on an a la carte basis or by Green Mountain as part of a service bundle. We will be happy to provide service provider recommendations to you upon request.
What kind of reporting will I get on my captive program, and how often?
Generally, through our partners at SRS, we provide comprehensive financial reporting to the participant(s) in each captive cell program operating under Green Mountain on a quarterly basis. This reporting is typically accompanied by an executive summary detailing the both the performance and financial health of each program. Additionally, for incorporated cells, SRS will provide an annual stewardship report detailing your captive’s regulatory compliance.
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