Introduction
At Specialty Captive Group (SCG), a division of Specialty Program Group, we have been at the forefront of providing risk management solutions for over three decades. Our expertise spans a broad range of industries, enabling us to develop customized, innovative insurance solutions that precisely meet our clients’ unique needs.
Background
In the rapidly evolving and challenging property insurance market, traditional insurance solutions often fall short in providing the flexibility and cost efficiency required by large property owners. Recognizing this gap, SCG leveraged its deep expertise in captive insurance to devise a strategic solution that not only mitigates risks but also optimizes financial outcomes for our clients.
The Challenge
A prominent real estate owner faced significant challenges with the escalating premium costs associated with property insurance. The conventional market quoted an exorbitant layer premium of $10 million for the first $10 million of coverage, making traditional insurance economically unfeasible.
The Solution
SCG’s captive insurance solution involved a nuanced approach where the captive would take on a substantial portion of the risk, thereby reducing reliance on traditional insurance carriers and lowering overall insurance costs. Specifically, the captive took 35% of the risk on the first $10 million of coverage, which translated to $3.5 million being ceded to the captive. This strategic risk retention enabled a more balanced risk distribution and enhanced control over the insurance process.
Financial Structure and Benefits
To facilitate this arrangement, a fronting carrier was engaged for which SCG had to pay a fronting fee of $300,000. Additionally, to ensure robust financial security and compliance, $300,000 was allocated as collateral into the reinsurance trust. This trust is meticulously maintained with a minimum balance of $3.5 million to cover any potential claims, ensuring a seamless risk management process.
Through this structure, the real estate owner benefited from substantially reduced insurance premiums while maintaining comprehensive coverage. Moreover, this arrangement provided the flexibility to explore other long-tail coverage options such as general liability (GL), which further diversified the risk portfolio and optimized tax implications associated with underwriting profits.
Conclusion
This case study exemplifies SCG’s commitment to crafting tailored solutions that address specific client challenges in the property insurance sector. By leveraging our captive insurance capabilities, we have not only provided a cost-effective solution for our client but also demonstrated the potential of captive insurance in complex risk environments.
For more insights or to discuss how SCG can assist with your unique insurance needs, please contact:
Evan Muffly
President
Specialty Captive Group, a division of Specialty Program Group
