Background on Strategic Reviews
Feasibility studies are well know in the captive industry. They are commonly part of the initial analysis when designing a new captive. “Refeasibility study” is a newly coined term meaning to look anew at a captive and decide if you would make the same decisions now that were made when its feasibility study issued. Frankly “refeasibility” seems a silly term to us. Well managed captives following our brand of best practices does a “refeasibility” study at least annually, part of the annual “renewal” procedure we recommend be part of all thorough best practice compliant management services. Done correctly, annual renewals almost invariably lead to business plan (captive insurance program) changes and should impact commercial insurance program and other aspects of the overall enterprise risk management system.
Going Beyond Feasibility Studies and Captive Renewals
Strategic reviews go beyond feasibility, refeasibility or annual renewal procedure studies.
Strategic reviews should look at all existing documentation, including processes and procedures, financial condition, reports (financial, regulatory and tax), contractual relationships, everything available relating to the captive since inception, and identifies all weaknesses and areas needing improvement. A strategic review’s main objective is to identify any potential problem areas that might arise during a regulatory or tax examination of the captive.
The reason strategic reviews are not common is captive managers guard their processes and procedures and documentation very closely. They do so out of competitive spirit as well as insecurity.
Owners of captives should be the one making a decision to hire someone to do a voluntary strategic review, and demand the manager cooperate and provide all needed documentation if not already in the owner’s possession (as it should be via shared secure dedicated server or a cloud storage service facility).
Best Time for Conducting Strategic Reviews
The slowest time of year for most micro-captive managers seems to be the July through September time period. This would be a good time to conduct a strategic review. This would also seem allow sufficient time to address any findings of concern by year end.
Scope of Strategic Reviews
Every strategic review engagement is uniquely customized. The exact scope should be articulated in the engagement agreement.
We have done general “clean up” testing strategic reviews for captive managers which merely involved reviewing client databases to see if core documentation connected to formations was properly stored and easily retrieved in client files. Deficiencies are not uncommon from the early years as a manager since many managers in their early years lacked staff depth and expertise compared to today. Earlier year client project files are often not documented to the same degree of quality and scope as more recent captive project may be. This type of strategic review helps bring older client captive documentation standards up to current practice standards if possible. Many management firms have grown fast and are busy; full time internal staff often simply lack time, or expertise, to do this type of special project work.
We recommend every strategic review initiated by an owner (verses by the management firm to get a second and outside opinion on the quality of their program and staff work product) consider having part of its scope be development of a RFQ (Request For Quote) component if the owner is considering either changing managers (possibly creating a new captive and winding down an old one no longer deemed adequate for any of many reasons that may surface during a strategic review) or looking for engagement renewal negotiation strength.
Contact us for more information if interested in the cost and scope of strategic review services.