Employee Benefits in a Captive


What is a Captive?

A captive is a licensed insurer, owned and controlled by a parent organization, and used primarily to insure or reinsure exposures of the parent and its affiliates. Captives typically only insure risks of the parent or entities with a very close relationship to the parent company. They operate much like traditional insurers by:

  • Issuing policies
  • Collecting premiums
  • Reimbursing claim payments
  • Preparing balance sheets and income statements
  • Complying with regulatory requirements of the insurance domicile 

How MSW Changed the Industry

Historically, captives were utilized for property, casualty and workers compensation. In fact, prior to 2000, utilizing a captive for any type of employee benefit program was prohibited by ERISA. In the year 2000, MSW, along with key strategic partners, pioneered a structure to utilize a captive to reinsure employee benefits. MSW sought an individual exemption to allow a client to reinsure their Group Long Term Disability plan with a single parent, Bermuda-based captive. The Department of Labor (DOL) granted the exemption, and MSW designed and implemented the first employee benefits captive arrangement (Private Transaction Exemption (PTE) 2000-48). 

Since then, our Employee Benefits practice has been actively engaged in creating innovative ways to utilize captives for employee benefits. Interest in the use of captives to fund employee benefits continues to grow in popularity today. Group Health Insurance (primarily stop loss), Group Life Insurance, Group Disability Insurance as well as Retiree Health Coverage & Pension Risk are coverages commonly considered for a captive arrangement. The use of captives to fund employer stop loss has been gaining momentum for several years, and with the DOL’s recent return to a favorable outlook on ERISA* plans and the reinstatement of the Expedited Process** (EXPRO), significant interest and activity has reemerged regarding most employee benefit plans.

MSW Today

MSW continues to manage the original captive program that started this movement – providing our practice with unique knowledge that no other consultant or broker can claim. Years of experience with this original arrangement, as well as many other captive projects, gives MSW an unparalleled amount of knowledge and experience to successfully implement and manage these plans long term.
Our analysis of the advantages of utilizing a captive in the manner described above includes several processes, including a clear & concise feasibility study prepared in conjunction with our actuaries & captive manager.  It is of extreme importance to recognize that many departments within a company must be genuinely committed to this venture and intimately invested in the process.     
We are very excited about the future of the captive environment for employee benefits and are currently analyzing several new avenues to use the advantages created by introducing third party business into a single parent captive.
*ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
**“EXPRO” eliminated the arduous and costly process experienced by the initial applicants.
For more information related to our captive practice, please click on the links below.
Employee Benefits in a Captive Solutions