Guide 4 · before you form

What a captive feasibility study covers

A captive starts with a feasibility study: an actuarial and financial case that the captive can carry its risks. Regulators license on it. Here is what Vermont, the largest US domicile, asks to see, and what the process typically costs and takes.

5 years
of projections, expected and adverse, required for every Vermont licence application1
$500
Vermont licence fee, then $500 a year2
$5–6K
actuarial review of the application; the regulator’s fee chart and fees page differ23
≈ 30 days
Vermont’s turnaround once a complete application arrives3

What the study has to show

In one company’s account, the whole process from feasibility study to approval took about a year4.

1 of 4

Your loss experience

Losses and exposures for the risks the captive will write, the basis for pricing them. A typical experience period is five to seven years5.

Gaps in the data are common, and an actuary fills them with industry statistics5.

2 of 4

Expected and adverse cases

Five-year financial projections under expected and adverse scenarios, mandatory for every licence application in Vermont1.

The actuary develops the loss projections and the levels of premium and capital they imply4.

3 of 4

Capital that covers the bad case

The capital the captive will hold, sized against the adverse case4. Vermont’s minimum for a pure captive is $250,000, and the regulator can require more6.

4 of 4

Reinsurance and loss prevention

How large losses will be passed on, and how claims will be prevented. Vermont’s statute names the adequacy of the insureds’ loss prevention programmes as a licensing factor7.

What it costs to keep running

Utah’s insurance department estimates ongoing costs at $60,000–$80,000 a year8; an actuarial paper put a single-parent captive’s typical annual expenses at $50,000–$150,000 before reinsurance5. Those costs are why a study should answer “not yet” as readily as “yes”.

Run the numbers before you commission a study

Realtech’s captive design tool works through the same questions on your own data first: expected and adverse years, the capital a captive would need, and whether guaranteed cost, a retro or a large deductible would serve you better for now.

Sources

Figures are published rules, estimates and benchmarks, not quotes. They vary by state, domicile, line of cover and year.

  1. Vermont DFR, Guidance: Proforma financial projections (21 January 2022): five-year projections, expected and adverse, mandatory for all licensing applications. dfr.vermont.gov Regulator.
  2. Vermont DFR, Captive fees and premium tax chart: licensure $500, annual renewal $500, actuarial application review $6,000. dfr.vermont.gov Regulator.
  3. Vermont DFR, Captive Insurance: Applications, Forms and Fees: actuarial application review $5,000; turnaround about 30 days from receipt. dfr.vermont.gov Regulator; fee differs from the chart.
  4. Captive Review, “Q&A: Creating a captive in Vermont”: the feasibility study as the foundation of the application; five-year expected and adverse projections; about a year from study to approval. captivereview.com Trade press.
  5. A. M. Conway (Tillinghast–Towers Perrin), “Ratemaking for Captives and Alternative Market Vehicles,” Casualty Actuarial Society Forum, Winter 2005. casact.org Actuarial literature, dated.
  6. Vermont Statutes, 8 V.S.A. § 6004. legislature.vermont.gov Statute.
  7. Vermont Statutes, 8 V.S.A. § 6002(c): licensing considers the adequacy of the loss prevention programs of the insureds. legislature.vermont.gov Statute.
  8. Utah Insurance Department, “Captives in Utah: Basics.” insurance.utah.gov Regulator estimate.

This guide is general information about captive insurance. It is not insurance, legal or tax advice. Realtech is an independent consultancy and does not sell insurance.