Single owner

Multiple owner, group-owned

There are a lot more single-owner captives. The multiple-owned ones are usually larger. But the MOs are very different.

If group-owned, a member-owned  or association captive that is not a mutual or RRG

A true member-owned captive that is  a mutual or RRG

There are more group captives that are simple stock companies, even if they operate like mutuals.  Sometimes the association itself owns the captive, which is a third type.

Insureds are owners

Agent or producer-owned reinsurance companies ("PORCs")

PORCs aren't captives, but are often counted as captives

Stand-alone captive

A cell

Most segregated cells operate like little captives but with very different ownership and control features

For-profit owner

Non-profit owner

US non-profit owners have tax and operating positions much different from their for-profit counterparts

Not health-care (owners and main line of business)

Health-care

Health care captives usually write mainly long-tail liability business and are heavily influenced by actuaries.

US ownership

Non-US ownership

Home-country tax, accounting and consolidation rules influence how captives work and look

Small

Large

Larger captives tend to resemble commercial insurance companies, and are sometimes considered more reliable just because they are so large. This is a  misunderstanding

Modus operandi

Startup

Mature

Contrary to popular belief, there are a whole lot more mature captives than start-ups; nevertheless startups get all the attention

Offshore

Onshore

Most captives are offshore, which sometimes means onshore captives are erroneously considered in the same light as offshore captives.

Direct writing

Reinsurance

There are more reinsurance-writing captives, but they suffer from the demands of fronting companies.

Writes mainly (or some) low frequency high-severity business.

Writes  mainly low-severity, higher frequency business

Among risk managers, this is the big differentiator. It also has a lot to do with how much capital the captive has.

Own management

Contract management

While most captives are run by contract managers, owners of the larger ones often perform some or all the management functions in-house.

Takes risks

Low  risk

Higher risk taking implies  more free capital. Most captives don’t take much, or enough risk.

If Reinsurance MO, takes gross cession

Takes net cession

Gross cession captives have  more reinsurance to place than net cession captives. But fronters are pushing net cession these days.

Changing  business plan (without any mention of this difference).

Stable, unchanging business plan

Most captives' business plans are modified frequently. For this reason nothing is so  misleading as a time-series comparison of all captives or of one to another

If a cell, a closed cell (shares no risk)

Open cell (shares some risk, usually the credit risk)

Open cell MO is the standard rent-a-captive MO. It is going out of fashion, though. Promoters of cells nowadays are pushing closed cells.

Doesn't write terrorism

Writes terrorism to gain access to TRIA or Pool Re

Provided TRIA gets renewed! Most don't write terrorism, though

Writes employee benefits

Doesn't

Only a few do, but owners of those that do are among the most advanced of today's captive owners.

Writes some liability, long-tail

Writes only property, short-tail

Writing long-tail business is a sign of long-term commitment

Writes some WC (EL)

 Doesn't

Writing employee business, especially if written directly (as, for instance with high deductible buy-back programs) is another indication of long-term commitment

Risk manager negotiates reinsurance

Manager does it

Those who do are carrying on the "do-it-yourself" tradition of the captive pioneers, but may not be getting the best deal.

Risk manager on  the captive’s board, or is president

RM not an officer or director

The RM is the best link to the shareholders' interests, even if he has his own risk financing agenda.

Breaks even

Makes significant profits

High profits may be a sign of a successful captive to finance directors, but more often is a sign that members are being overcharged. See similar comment under combined ratio, below.

Does  not pay dividends

Pays dividends

Most captives don't, especially if run close to  break-even

Investable assets >$10 million.

Less than $10 million

This differentiator is used by some investment managers as the  threshold  for their involvement

Some free assets

Most of its assets tied up in collateral

Captives used to have considerable free assets; these days those that still do are in a better position than those that don't

Uses an investment manager

Doesn't

Where they don't, the costs may be lower, but so, generally, is the total return. In some unmanaged cases, the captive’s security is considered to be lower. too.

Expense ratio <15%

>30%

Includes costs of fronting, but not reinsurance. Low expense ratios are “good” but not always.

ROE <10%

>15%

Mature captives with high net equity often show lower ROE than younger captives. High ROE is one sure sign of overcharging (see breakeven differentiator, above) but may also be a sign of high risk-taking

Combined ratio close to or  equal to 100%

Either  >100% or <50%

This is the big differentiator of captives from commercial insurers. Where the ratio is too high there will be trouble from the captive’s shareholders, where too low, from its insureds. See also “break-even”, below.

Clear mission statement

None, or wooly-worded

Often the “mission statement” isn’t written, but if the implication is that it is “providing the best insurance deal for its insureds” rather than something like “making reasonable profits” the captive is on sounder ground

Own data system

Depends on someone else's

Better information about their exposures and losses are what differentiates captives from commercial insurers.

Rated

Not rated

A M Bests or S&P rating is a sign of confidence in a captive

Comes to WCF

Never does

Those who come find out a lot about how their captive compares to others!

And,  finally…. Active

Dormant

There are a lot of inactive captives, notably offshore. They are usually counted in the “statistics” of captives.

Tax position

Owner takes (gets) deduction

Doesn't

Non-US-owned captives  mainly get the deduction, but you would  be surprised at the number of US-owners of captives who don't. Non-profit owners, for instance.

Writing >30% unrelated business

Writing less, or none

There are a lot more captives not writing any unrelated  business.

If offshore and US-owned, doesn't make the 953(d) election

Makes the election

Many US-owned offshore captives don't, notably those owned by non-profits.

Breaks even

Makes significant profits

Owners of breakeven captives have far fewer tax concerns

Loanbacks to owners

No loan backs

Tax and regulatory people dislike loanbacks but they are a common feature of advanced captives