Find out if forming a captive insurance company is right for your business by exploring the resources and information provided below.

What is a Captive?

A captive insurance company is a formalized form of self-insurance with the specific objective of insuring risks emanating from their insured/sponsor group (or groups) and in some instances the risks of the group's customers. The captive insurance company's insureds have direct involvement and influence over the captive's major operations, including underwriting, claims management, and investment policy.

Forming a captive insurance company is an alternate form of risk management by which companies have more control over how they are insured.

The State of Tennessee recently adopted legislation establishing Tennessee as an onshore domicile for captive insurance companies. If your goals could be advanced by the formation of a Captive Insurance Company, we stand ready to support you throughout this process.

Types of Captives

There are several types of captives, depending on business need, type, industry, etc.

  • Single Parent (Pure) Captive – a Pure Captive or "single owner captive" is owned and controlled by one company and insures only the risks of the parent or the parent's subsidiary operations.
  • Branch Captive – a branch captive is an onshore (U.S.) arm of an existing offshore (alien) captive that is licensed in Tennessee to write insurance for its owners and affiliates onshore. The brand is regulated as a pure captive, is taxed only on the branch writings and is required to use an onshore trust for the protection of U.S. policyholders and ceding insurers.
  • Special Purpose Financial Captive – a special purpose captive is a reinsurance company that issues reinsurance contracts to their parent and cede the risk to the capital markets by way of a bond issue. It is owned or controlled by a parent company and may only insure the risk of its parent.
  • Association Captive – an association captive has two or more owners and is typically owned by members of an industry or trade association. This type of captive is designed to insure the risks of that industry with participation generally limited to members of the association.
  • Industrial Insured – an industrial insured captive is one formed to insure the risks produced by a group of industrial entities.
  • Sponsored Captive (Protected Cell) – sponsored captives are a type of rent-a-captive, allowing for assets and liabilities of one captive program to be legally segregated from the assets and liabilities of other captive programs. Sponsored Captives allow an entity to insure its own risks without establishing its own captive structure.
  • Risk Retention Group (RRG) – a Risk Retention Group is an entity formed under the federal Liability Risk Retention Act and may write only liability coverage.

Benefits of Captives

So why should you consider forming a Captive? There are several key benefits to consider, including:

  • Greater flexibility in coverage capacity and cost of managing business risk
  • Increased control over claims
  • Sponsoring businesses can reduce their overall risk profile after Captive formation
  • Potential tax savings for underwriting profits and future distributions
  • Investment and underwriting income may be available to fund business expansion
  • Helps provide for wealth transfer, as well as estate and succession planning

How First Tennessee Can Assist You

First Tennessee can provide a wide range of financial products and services to help facilitate Captives – from deposit accounts and letters of credit to investments and trust services. Our location is key because Tennessee offers several favorable benefits to the creation of Captives, including:

  • Ease of entry, with a low application and formation cost, simplified licensing requirements, and low premium taxes
  • Flexibility of types of Captives and risk coverage available
  • Low capital requirements for formation

Working with a number of other Tennessee-based Captives today, First Tennessee believes we have the experience and first-hand knowledge to help you as you form a cost-effective Captive to serve the risk management needs of your business.

First Tennessee and Captives

First Tennessee provides products and services to help facilitate the formation of Captives domiciled in Tennessee and other states, including the following financial solutions:

BizEssentials Cash Management Package

BizEssentials Cash Management Package conveniently combines BizEssentials Checking with options for important treasury management services to serve the Captive's specific and unique business needs. Each BizEssentials Cash Management Package is built around the simplicity and convenience of one of four checking products based on the Captive's average number of transactions per month and unique requirements for Service Options.

A Premium Rate Option for excess liquidity reserves is available in a BizEssentials Savings Account through a daily sweep feature from and to the checking account.

Depository Agreement Account

First Tennessee understands that minimum regulatory capital must be maintained by a Captive Insurance Company. These requirements can be met by placing securities in a First Tennessee custodial account or depositing funds in a BizEssentials Savings Account with a Premium Rate Option. First Tennessee will file periodic reports with the Tennessee Department of Commerce & Insurance concerning assets held in these accounts.

Letters of Credit

Many Captives choose to meet their dedicated minimum capital requirements temporarily with a letter of credit instead of a cash or securities deposit. Also, reinsurance companies may require a support letter of credit.

Being among the oldest financial institutions in the U.S., First Tennessee is able to structure a credit facility to meet your specific letter of credit needs in a quick and cost effective manner at commercial reasonable terms.

Additionally, our experienced commercial bankers work with professionals who support the Captive Insurance Industry such as Captive Advisory/Management Companies, attorneys specializing in the formation of Captives, and with CPAs/Actuaries.

Outside Resources

First Tennessee understands the financial needs of sponsors wishing to form their own captive. This decision takes research, planning and trusted relationships. First Tennessee has established contacts with professionals who can help you decide if a Captive fits your business objectives. Beyond the resources found here, for more information on captive insurance companies in Tennessee, consider the following resources:

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