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Offshore Captives Could Be Last Haven In Hard Market


Most Offshore Captives Look Much Better In Workers Comp Hard Market

Most offshore Captives look great in a Workers Comp Hard Market. For many years, I did not catch on to the concept of captives in the Workers Compensation market. As insurance and reinsurance markets start to harden quickly, I think that all employers should take a look at this “hybrid” insurance.

Vector Graphic of Insurance Hard Market Captives On Shield Icon

Captives are so named as the policyholder owns the insurance company.  This makes the insurance company “captive” to the policyholder.

There are several types of captives – I will not define all of them here.  If you need a definition or have questions about any of these terms, please email me.

  • Single Parent Captive
  • Association Captive
  • Group Captive
  • Agency Captive
  • Rent-a-Captive

The only one from the list above that I wanted to comment on is the Rent-a-Captive. These are designed for smaller companies that could not afford a captive on their own.  This makes the captive market appealing to almost any company that is searching for an alternative to their regular insurance policies.

There are quite a few reasons that captives will become more appealing for Workers Compensation coverage.

They are:

  • Heavy and increasing premium costs in almost every line of insurance coverage.

    Picture Hand Presenting Business Finance Captives Concept
  • Difficulties in obtaining coverage for certain types of risk.
  • Inflexible credit rating structures that reflect market trends rather than individual loss experience.
  • Insufficient credit for deductibles and/or loss control efforts.


As you may notice, these are the four concerns that almost all employers now have to deal with on at least a yearly basis. Captives are not the cure-all for what ails companies presently.  They do offer a great alternative.

Interestingly enough, the three top domiciles are Risk Management techniques for shifting portfolios of loss. Bermuda, the Cayman Islands, and Vermont. Vermont was the first state to involve itself with captives. Those three domiciles represent 47% of all captive domiciles.  The captives’ domiciles are its primary jurisdiction. The captives are subject to a yearly audit by a consulting actuary.

The two best benefits of an offshore captive are cost and flexibility.  I have some reservations about the TPAs that are used by some of the captives. They were somewhat lacking in a few areas whenever we audited the TPA’s claims handling and reserving. The file reserves are more important with a captive than with a regular insurer. As I commented earlier this week, the captives have to be large enough or well-reserved enough to not violate the Law of Large Numbers.  A captive is a much smaller entity than a regular insurance company. That is why the file reserves are beyond critical and the actuary must be very accurate on his/her reserve projections for the next 10 years. Choosing a TPA and actuary is very important to the survival of the captive and its member(s).

Hand Drawing Captives Upward Arrows With Dollar Sign

The most surprising development occurred in 2007 – 2008.  I had thought the IRS was not going to allow the tax-advantaged basis on the reserves in a captive.  The IRS did almost a complete reversal and ruled that captives should retain their tax deductibility.  I think they realized they could crash the whole insurance market if they all of a sudden ruled that captives were to be fully taxed.

This is much more to captive insurance arrangements.  I tried to provide a quick summary.  If you have any questions, please email us.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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