Setting up a Reinsurance company is a smart decision enjoyed by 70,000+ business leaders operating in all 50 US states. Associated elements generally include mitigating business risks (and you can combine multiple LLCs), adjudicating claims, protecting assets and remitting tax-advantaged premiums associated with risk exposures identified by a third-party actuary and a formal study/assessment.
And if the Company Formation process feels daunting, rest assured it is simple, straight forward and can take as little as 10 minutes. To help you prepare, here’s an overview of the steps involved.
Perform a Feasibility Study
Before setting up a Reinsurance company, many business leaders seek feedback, insights, education from Field Representative familiar with reinsurance structures.
A feasibility study can help you assess your business' candidacy relative to industry, gross revenues, predictive risk profiles, current P&C coverage, and more. Some organizations - like Reinsurance Specialties™ - provide one-on-one consultation complimentary (no charge). Feasibility studies (Company Assessment) will help you better understand recommended structure options, next steps and can include client testimonials and/or redacted actuarial samples from peers within your industry and more.
Choose a Service Provider to Help With Setting Up a Reinsurance Company
Typically, a Field Representative will educate you compliant deliverables of the service provider; they will cover many of the ongoing operational details so that you can focus on running your business. If possible, get quotes from a few different companies, but also get detailed information on their services, deliverables and cost structures so you know you’re comparing apples to apples. Talk with each company so that you get an accurate picture of what your future will be like together.
Select the Type of Reinsurance Plan
Captive insurance plans fall into a few different categories. One of the most conservative, compliant and flexible form of Reinsurance is a PORC (producer owned reinsurance company aka privately owned reinsurance company).
Reinsurance Specialties™ represents the top PORC model in the US by way of combining certain reinsurance elements relative to domiciling choice, not requiring the unnecessary trust and applying a flat fee (percentage) of remitted premium.
Subject Matter Experts at Reinsurance Specialties™ advise business owners to stay away from 'Direct Write' models; however, they may want to explore Group Captives which typically 'pool' risks with other businesses in their field.
Do I Qualify for a Reinsurance Plan?
How large does your business need to be to enjoy benefits of Reinsurance? There are no strict rules, but generally speaking, companies who can remit $20,000 per month or more into their insurance company will appreciate the value, flexibility and direct benefits.
Another general qualifier is that the business leader earns $1.5M annually in gross revenues.
Leverage an Actuarial Study
Top reinsurance service providers understand that a licensed, third-party actuary (unrelated to the client's business) is the strongest (most compliant) route to establishing an organization's risk exposures and, ultimately, the related policy/premium. Licensed actuaries will use decades of actuarial data on a per-industry basis to identify, validate and record risk line items associated with each business. This can include business interruption risks, regulatory risks, legal risks, reputational risks, loss of records, director and officer risks, property risks, warranties, malpractice, errors and omissions and many other risks based on the specific business environment. The IRS likes to see that policies are based on a third-party and professionally-licensed actuarial study.
Begin the Formation Process
Once you’ve selected the type of captive and the service provider, you can pursue company formation. During the formation process, your organization will typically domicile the insurance company in one of three different ways: a) domestically (state); b) domestically (Tribe) ( tribal nation); or foreign (foreign country).
If choosing the state route, ensure you have the minimum required start-up capital which varies based on the state, your type of captive, ownership structure, the service provider you hire, and other details.
Paperwork often involves owner name(s), social security #, prospective name of new entity, a criminal background checklist, a corporate secretary (insurance companies are c-corps), etc. Often, there is a limited power of attorney form involved in this part of the process.
Complete the Final Steps of Setting Up a Captive Insurance Company
At Reinsurance Specialties™, a Field Representative will usually 'connect the dots' between the business leader and his/her team and a preferred service provider; they will make the final steps simple, transparent and straightforward. Activities will likely include Company Formation (obtaining EIN and Tax ID), a formal assessment with an Actuary, and opening up your bank account. Business Leaders have full discrepancy with regard to assigning 'signers' on this dedicated bank account. Once these items are complete, you can start remitting premium to mitigate business risk/adjudicate claims with respect to your policy.
To learn more about setting up a captive insurance company, contact us today. At Reinsurance Specialties™, we help business leaders mitigate business risks, adjudicate claims, protect assets and build wealth through tax-advantaged insurance products.
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