The far-reaching benefits of establishing captive insurance companies

If you answer YES, our team might be an attractive asset management partner for your captive:

• Are you looking for a partner who understands the uniquely complex and sophisticated asset management that the insurance industry requires?
• Do you want to work with an investment team who has a diverse presence and capabilities in the markets in which you operate?
• Does your current investment allocation expose your captive to additional regulatory or IRS scrutiny?
• Do you want to work with a partner who has deep understanding of insurance investment best practices and access to specialized tools to develop, monitor, and manage your captive investment portfolio?
• Are you looking to make the best use of your captive's assets?

Wellspring Financial Solutions is a team of industry leading investment professionals providing specialized expertise for captive insurance companies. Since 1995, Wellspring has focused on helping insurance companies navigate the complex world of investment and banking within an insurance regulatory environment.

Our team makes it easier for you to deal with the complexities of implementing and operating a captive insurance investment management program. We understand the uniquely sophisticated asset management that the insurance industry requires.

With Wellspring you will have access to a deep bench of experienced professionals who deploy robust technologies typically reserved for large commercial insurance companies. This allows you focus on your business. You’ll gain confidence and clarity around maximizing your captive’s return on investment and we’ll help you manage risk.

• Our collaborative team has been managing insurance assets since 1995.
• Our proprietary asset/liability modeling system was designed specifically for the insurance industry.
• We serve a diverse clientele with capabilities in the markets in which you operate.
• You'll receive access to consolidated reporting by Clearwater Analytics.
• We have experience working with many captive types including; Group, Association, Protected Cell, Pure, RRG, Reinsurance Trusts (114).

Raymond James is not affiliated with and does not endorse the opinions or services of Clearwater Analytics.

Who We Serve

Our Diverse Capabilities

• We have experience with diverse captives across a wide variety of regulatory environments
• We're able to support clients in all markets
• We work with all captive types including: Captive Types: RRG, Group, Association, Protected Cell, Pure
• We work with Commercial Insurance Companies and Reinsurance Trusts (114)

Information Gathering

• We get acquainted with you and your captive.
• We help each other understand expectations and needs.
• We gather information to begin developing a comprehensive picture of your unique captive.

Asset/Liability Analysis

• Our thorough process begins with complex asset/liability modeling.
• We'll deep dive into historical actuarial data and develop a forward-looking projection which accounts for projected losses.

Investment Strategy & Governance

• An asset management strategy is tailored to align with your captive's unique projected liabilities, liquidity needs, insurance risks and Investment Policies.

Stress Testing & Risk Monitoring

• We proactively stress test your portfolio against economic events to understand how those changes may impact your captive's financials.

Consolidated Reporting

• Downloadable portfolio accounting provided by Clearwater Analytics, a quality system which simplifies reporting so you can focus on running your business.

Regular Support

• Rigorous review of your captive asset management plan to help you understand potential issues which might impact the portfolio.

Raymond James is not affiliated with and does not endorse the opinions or services of Clearwater Analytics.

Asset Liability Analysis

The Foundation of our Process

An Asset/Liability Analysis is one of the most important parts of our proprietary process and provides the framework for asset management decision making. It's an area of expertise that we believe differentiates us from most financial advisors.

Our liability driven investment (LDI) analysis is the same process used by commercial insurance companies. Without it, your captive could be exposed to risks live solvency problems or regulatory scrutiny.

Our LDI analysis is a financial tool used to evaluate the balance between your captive's assets and liabilities and to identify potential risks or imbalances that may impact financial performance. We use an asset/liability model to compare your captive’s liability cash flow pattern to expected portfolio cash flows.

Identifying investment cash flow and duration mismatches helps mitigate risk on both sides of the balance sheet. By analyzing projected losses and comparing them with an adverse loss scenario, captive insurance companies like yours can better understand potential risks and take steps to mitigate them.

A variety of factors can affect investment cash flow and claims cash flow including changes in economic conditions, shifts in the insurance market, and changes in the company's operations. You will need to regularly review and update your investment and risk management strategies to ensure that you are able to meet your captive’s financial obligations and achieve your long-term goals.

The ability to analyze and convert your captive's actuarial data, financial ratios and metrics into cash flow projections requires a sophisticated level of expertise and complex tools that we offer as experienced captive insurance asset managers. Very few investment professionals receive training in LDI portfolio design, implementation and management. We have over 25 years of experience in liability driven investing.

• Few financial advisors understand how to design, implement and manage a liability driven investment portfolio.
• Very few investment professionals receive training in liability driven investment solutions which is foundational for insurance asset portfolio construction. We have over 25 years of experience in liability driven investing.
• It is important that your investment team is well versed on insurance regulations.
• Your captive’s portfolio will be customized and aligned with how insurance companies manage assets.

Why we follow insurance Industry Best Practices

• Captives Are Insurance Companies.
• Captives with investment allocations outside industry norms are at increased risk.
• You should have a well-established fact pattern to support your asset management decisions.
• Asset managers with specialized tools and expertise required to manage insurance assets are rare.
• Professionals who lack training and experience with insurance industry best practices could expose your captive to undue risks like regulatory scrutiny or solvency problems.

Can my personal financial advisor manage my captive assets?

We get this question a lot! Managing assets for insurance companies requires sophisticated tools along with an understanding of the complexities within the captive insurance space like: regulatory requirements, actuarial analysis and liability driven investment strategies just to name a few. It's rare to find investment advisors who have experience or received training in these areas. We have spent decades helping insurance companies manage their assets. We have the tools, training and expertise to serve clients in the very specialized captive insurance space.

What is the process for onboarding my captive and opening accounts?

Once we have had a chance to learn more about your captive and you've had a chance to learn more about us we'll decide if moving forward is the next right step. Onboarding consists of gathering information about you and your captive. We will connect with you and your captive manager to collect documents like: recent financials, actuarial reports, Investment Policy Statement or Guidelines, current account statements, and Articles of Incorporation or Organization. Because captive insurance companies are complex entities and no two are exactly alike, the process for onboarding can take a few days to a few weeks depending on the complexity of each individual captive. Our team meticulously stewards this process to make it as seamless as possible.

What expenses should I expect from my captive asset manager?

Our goal is to provide exceptional value to our clients. You will receive a fee schedule based on the size of assets managed by our team. Because we manage assets for commercial insurance companies, our team has access to tools and processes that would typically be reserved for only the largest entities. We are able to deliver sophisticated solutions and robust service by charging a competitive fee to manage your captive's assets. Many of our captive clients rely on us to provide education and guidance for their operations teams, professional partners, executives and Boards of Directors. We want you to get the most out of your relationship with us and our team is committed to providing a customized experience.

PROPRIETARY PROCESS

• Robust actuarial analysis using sophisticated tools to evaluate unpaid losses and reserves
• Convert loss data into a payout pattern and develop an asset liability model
• Rigorous risk and compliance reviews to help you understand potential portfolio impact (investment performance, compliance to investment policy, compliance with regulations, etc.)

CUSTOMIZED SOLUTIONS

• Guidance on Investment Policy Statement development
• Recommend and implement your customized asset management strategy aligned with insurance industry best practices
• Deliver automated, timely consolidated investment accounting and regulatory reports through Clearwater Analytics

COMPREHENSIVE SERVICE

• Quality personal service from our team of captive insurance industry professionals
• Investment and custody accounts aligned with regulatory requirements (evaluate master custodian agreements if needed)
• Summarize and review your investment portfolio including Board of Director presentations if requested

Raymond James is not affiliated with and does not endorse the opinions or services of Clearwater Analytics.

We’re Passionate About Captive Insurance

Wellspring Captive Solutions team members actively serve the captive insurance community. We currently serve on the Tennessee Captive Insurance Association Board of Directors and have held leadership positions throughout the industry.

We lend captive insurance thought leadership regularly as speakers, contributors and participants with these diverse captive insurance publications, domiciles and associations:

• Tennessee Captive Insurance Association (TCIA)
• North Carolina Captive Insurance Association (NCCIA)
• Association for Financial Professionals (AFP)
• Self Insurance Institute of America (SIIA)
• Alabama Captive Insurance Association (ACIA)
• Captive Insurance Companies Association (CICA)
• Vermont Captive Insurance Association (VCIA)
• Delaware Captive Insurance Association (DCIA)
• Captive Review

Situation

Company: DMC Distribution is a 25-year-old automotive parts and electronics distributor. 

Ownership: Peter Frost 100%

Employees: 500

Annual Sales: Approximately $30mm

Business Valuation: $15mm

Event: In 2011, an earthquake and tsunami in Japan disrupted DMC’s supply chain causing a 30% reduction in annual revenues, and DMC had a net loss for the first time in history. When DMC evaluated adding supply chain, as well as other enterprise risk coverages to their commercial insurance program, the cost seemed prohibitive given the low likelihood of an event. The use it or lose it approach of traditional insurance wasn’t an effective solution.

In 2012, with Peter in his mid-50s and his son, John, joining the company, Peter realized that his ability to pass this company on to his children was going to trigger significant estate taxes.

Primary goal:

1. To provide a tax-efficient funding mechanism to stabilize the revenues of DMC in unlikely but high cost events.
2. The solution could not be use it or lose it. The funds had to remain available for an event but could not be lost without a claim.
3. Minimize the tax liability when DMC passes between the generations.
   
   

Potential Solution

Peter could potentially accomplish all of his goals by establishing a captive insurance company called DMC Risk Management. This new insurance company would be owned by his two children, John and Susan. DMC Risk provides enterprise insurance policies for DMC Distribution including supply chain, cyber risk, directors and officers, etc.

DMC Distribution would make annual tax-deductible premium payments to DMC Risk of approximately $1 million and will file claims as necessary if the business experiences losses. Because of the structure, DMC Risk isn’t required to recognize the premium payments as taxable income. DMC Risk will pay operating expenses and claims (if any) as they are presented from DMC Distribution. The surplus after DMC Risk pays claims and expenses are invested and are continuing to compound in DMC Risk and are owned by John and Karen.

This case study is for illustrative purposes only. Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.