ANNUAL RENEWAL (Manager change guidance below)
Procedural Timing: 30 to 60 days before expiration of issued captive policies
- invoice policies (based on prior policy terms)
- complete renewal analysis, and adjust invoicing if changes made
Procedural Objective: Improve captive policy offering program, and as possible and prudent, retain increasing amounts of risk previously shifted to commercial markets
Responsibility For Renewal Process & Decisions: All associated captive insurance program renewal obligations and decisions are ultimately the captive owner’s and officer’s responsibility, although captive managers generally assist, help make recommendations, coordinate involvement of outside underwriters/actuaries if being used, and often provide the needed documentation to complete the renewal process.
Detailed annual renewal decisions/actions of captive owners/officers:
- whether to keep policies as written in place for another term, or make changes to policy types or terms;
- sign a new summary/insurance purchase order, showing policy types, terms and premiums to issue
- have captive invoice insureds for new policy premiums (often this occurs based on prior year program to expedite invoicing and cash flow planning, and adjustments/credits made later once final renewal decisions are completed)
- if applicable, sign new risk pool reinsurance agreement and pay associated admin/cede fees
- prepare and execute captive board minutes approving the above actions
Key steps to a timely and comprehensive renewal (this should be completed well before (30 to 60 days) the expiration of your captive’s policy terms if possible):
- review the most recent policy and premium design summary (you should have a spreadsheet summary of policy types, terms and premiums issued);
- review the most recent client questionnaire (ideally prepare a new updated one);
- review commercial insurance policies;
- prepare a current loss report and complete updated risk analysis;
- discuss any changes desired with your manager (such as adding new policy coverage, deleting unwanted coverage, increasing or decreasing limits);
- review changes desired with an outside underwriting actuary, so the captive will have independent review and support for any policy coverage and pricing changes;
- determine impact if participating in risk pool, and complete any associated underwriting.
Regulator approval submission:
- If your captive is changing the policy types and terms of coverage being offered to your operating companies, regulatory approval may be required (Note: you should at a minimum inform regulators of any business plan change including policy types and terms even if prior approval not required or not possible due to timing constraints).
More Detail on Annual Renewal Considerations:
Annual renewal involves issuing new policies on expiration of exisiting coverage. This renewal process involves updating and making changes, if necessary, to the insurance policy types offered, changing limits, changing deductibles and retentions, changing premiums charged, and changing risk pool program if applicable, to mention some of the potential changes that may occur on renewal. Captive renewal policies often cover loss events retroactively to include prior policy periods (impacts pricing/rating by actuaries, and may or may not extend to any applicable risk pool reinsurance program).
For enterprise risk captives policy terms generally expire at the same time. For insured operating companies that prepay insurance premiums, whether or not insured companies tax preparers elect to deduct prepaid premiums or amortize them over the policy life, it is important to complete renewals early so operational impacts on insured businesses can be considered.
It is important your manager be informed of and understand all the material events and changes that occured during the year to your operating companies business structure and operations.
Simply automatically renewing a captive’s policy and premium program without assessing and reviewing the data since the last policy issuance period is not the best practice standards for related party captive transactions, although auto renewal when no policy or premium changes are desired is not uncommon in the industry, especially for cost sensitive smaller captive programs.
Suggested Key Management Change Process Steps:
- advise licensing domicile and obtain approval
- obtain complete file copies from prior manager – license application documents, original certificate of authority, all license renewal docuemtns, financial statements, regulatory reports, financial audits, tax returns, insurance policies and all amendments or renewals, loss and claims analysis and reports, actuary reports, all regulatory communications, list of service providers with contact information
- if participating in a risk pool, obtain all associated reports since beginning of participation, and discuss withdrawal procedures and steps with risk pool administrator – conitnued participation may not be allowed with manager change as most managers have proprietary pool facility for their managed captives only
- conduct renewal analysis as per above procedures, and obtain a acturaial peer review on prior managers policy and premim program
- Note: prior manager insurance policies may be copyright protected, so new manager should not reusse such policy forms or request permision for continued use.
Contact us if we can be of assistance, such as doing a strategic review of your captive program.