Frequently Asked Questions

Private Insurance  from Captive Alternatives

Setting up a Segregated Asset Plan can involve layers of complexity and the learning curve is often steep. You likely have questions about how Captive Alternatives’ Private Insurance works and what’s entailed in owning one. This list of Frequently Asked Questions covers the basics, and Captive Alternatives welcomes the opportunity to work with you to determine your next best step.

What is Private Insurance?

Private Insurance is an insurance company that exists to insure the risks of a related mid-size business. The Private Insurance Strategy acts like a conventional insurance company: issuing policies, accepting reinsurance, determining risk and paying claims.  It makes sense as part of a more sophisticated risk management strategy, because it enables a business owner to identify potentially catastrophic risks and gaps in coverage and creates a financing strategy to handle these worst case events. In addition, it lets a business owner share in underwriting profits that would simply disappear with a commercial carrier.

Private Insurance is set up within a corporate structure with a hub design. The structure has a central core organization linked to separate “Protected Cells” that have their own separated assets and liabilities. A Protected Cell shares all of the administrative and regulatory traits of a traditional insurance company; however, unlike a more traditional insurance company, this structure vastly increases administrative efficiencies, while maintaining statutorily protected assets within each individually owned cell.

How does Private Insurance work?

Private Insurance works as a participant in the sharing of risk which is at the heart of an effective risk management program. The Private Insurance Strategy does not issue direct insurance coverage to the insured business. Rather the insured obtains selected risk coverages from an independent insurance carrier, often called a fronting carrier. The Private Insurance Strategy participates in the insured’s selected risk coverages by providing reinsurance to the fronting carrier.

What are Safe Harbor rules/ Is Private Insurance compliant?

It is very important that business owners who sponsor a Private Insurance Strategy implicitly understand that they are participating in an insurance transaction. Safe Harbor rules help determine whether the Private Insurer is operating properly and compliantly as an insurance company. Two key considerations are Risk Transfer and Risk Distribution.

Risk Transfer is the action of obtaining insurance coverages from an independent issuing insurance carrier, thus shifting the risk from a self-insured risk retained by your company to a risk insured by another. This happens when the business pays actuarially determined premium to a licensed insurance company, that is not controlled by the business owner.

Risk Distribution is accomplished via the sharing of risk with unrelated insureds – a core concept of legitimate insurance. The Private Insurance Strategy thus shares 50% of the direct insureds risk and then accepts the other 50% as unrelated, third party risk.  This is a “safe harbor” amount that is far from any arguable minimums.

How are Claims handled?

The fronting insurer provides “claims made” policies that last for a one year period of time, plus a sixty-day notice period at the end of that year. Therefore, the length of time for reinsurance risk is a fourteen-month period.  The fronting insurance company pays the claim in full, and obtains 50% of the reinsurance recovery from the Private Insurance Company, and 50% from the unrelated party reinsurance facility.

Insurance premiums that were not spent on expenses or claims are returned to the Private Insurance, where they are typically held as surplus reserves i.e. the underwriting profit that would be lost in a commercial insurance arrangement

Can I take money out of a Private Insurance Strategy?

When Private Insurance surplus reserves are no longer needed to support reinsurance functions, they can be distributed as taxable dividends.

How long does it take to create a Private Insurance Strategy?

All of CapAlt’s Private Insurance Strategies are formed in Puerto Rico. This gives us unprecedented flexibility to offer customization, efficiency and speed in creating your Private Insurance Company. A new Private Insurance Strategy can be created in a matter of weeks. The Puerto Rico International Insurer structure is unique in the private insurance industry. The legislation behind it is based on years of research and detailed analysis of the laws of the top insurance jurisdictions.

Since the late 1990’s, CapAlt has set up more than 200 successful Private Insurance Strategies. CapAlt presently manages Private Insurance across many varying business and medical sectors, and we continue to grow

Does CapAlt give Tax, Legal or Financial Investment advice?

No. CapAlt does not give tax, or legal advice. We can certainly alert you to questions you might ask your trusted advisor, and CapAlt will work with your advisors to help them respond.

The CapAlt model includes the aggregation of financial assets which can be invested in compliance with insurance related investment principles. CapAlt does not give financial investment advice. The Private Insurance participants can select their own investment advisors or select from several investment advisors recommended by CapAlt.

Who needs Private Insurance?

Private Insurance is an essential risk management tool and should be considered for any successful companies with a substantial cash flow. Private Insurance  can provide a structure for your company’s long-term insurance and financial stability. They can be considered as additional profit centers for your business. Private Insurance can accomplish a multitude of long term goals for your business and its owners.

The ideal target business for  Private Insurance is a privately owned, profitable business with a gross annual income in excess of $2.5 million. CapAlt works with private companies of all sizes in all major business sectors, as well as many medical practitioners and medical companies.

What are the costs of a Private Insurance?

Reasonable fees – on a sliding scale – are charged for the creation and ongoing management of the fronting program and the Protected Cell operations.

Capitalization of Private Insurance is one third of the premium paid by the insured. This amount of capital is set by the Puerto Rico authorities to ensure that the private insurance company has the financial capability to withstand losses, especially in the early years. Over time, the capital assets of the Private Insurance Strategy grow from the retention of surplus funds generated annually. And it. gets financially stronger and is able to expand its reinsurance functions for its parent business.

How do I create and run a Private Insurance Strategy? There are three simple steps involved in determining whether your business is a fit.

First, we will have a conversation with you about your business, your present goals, and your company’s internal risks and current risk management programs. Those are the focal points of the “Risk Management” page of this website.

Second, CapAlt will provide you with a detailed feasibility and actuarial analysis report that shows your business several options for participation in the Protected Cell model, along with the associated costs and timelines of each option.

Third, you and your business advisors will select the program or programs that make the best sense to you, and you will select the timelines for implementation.

Once the Private Insurance Strategy is set up and running, the risk review and renewal decisions are performed on an annual basis. You will decide how long the program is in effect for your company, and you will decide if and when to end the program.

Is my money safe?

CapAlt goes to significant lengths to protect your captive funds. All new Private Insurance Strategies receive a bank account from a respected international banking institution, and we follow a rigorous internal control process that require multiple signatures for funds transfer. CapAlt has viewing only rights into these accounts to help prepare financial statements, Distributions or loans are subject to minimum surplus rules and formal loan documentation.