Case Studies
We have a number of examples of how we have helped businesses with their captive needs.
- Case study 1 - Bermuda domiciled Captive Re-Insurer
- Case study 2 - Cayman domiciled Association Captive
- Case study 3 - Vermont domiciled Single Parent Captive
- Case study 4 - New Captive cell within a Cayman domiciled Segregated Portfolio Company
Contact us if you would like a free Captive report on your business
Case Study 1
Client: Bermuda domiciled Captive Re-Insurer
Issue: Under a long-term reinsurance contract, our client was required to post US$25m in security with a US based primary Insurer. The contract had been in place for over 15 years and is expected to continue in force over the medium to long term. Security consisted of an Insurance Trust supported by a long-only portfolio of US Treasuries. The client was concerned about the unintended portfolio risks from inflation and interest risk sensitivity. They were also concerned about the low return on committed Capital.
Solution: London & Capital established a multi-asset portfolio designed to return 2% in excess of cash net of fees. The portfolio now supports an Evergreen Letter of Credit issued by an AA-rated Bank in favour of the fronting Insurer. The client is satisfied they are securing returns in excess of Inflation, and that the portfolio has been protected against the risk of adverse interest rate movements.
This solution resulted in a net bottom-line improvement to the Bermuda Captive Re-insurer averaging US$450,000 per annum.
Case study 2
Client: Cayman domiciled Association Captive
Issue: Following a period of persistently low and volatile returns from their long-only US Dollar denominated investment Grade Bond portfolio, the sponsors of the Captive were concerned about their ability to persuade their members to retain their surpluses in the Captive to build its Capital base and finance future growth plans.
Solution: We advised the Board on the setting up of two separate portfolios for this Captive – the first included the Captive’s Reserves for unearned premium, reported IBNR claims and minimum Capital requirements. The second portfolio included undistributed surplus and excess Capital. Each of these is managed to different mandates that reflect their respective priority on capital preservation and capital growth. Although the second portfolio is small, by differentiating the statutory reserves from the surplus, the members have been able to identify their surplus’ performance and are satisfied with an investment strategy that has a higher target return.
Case Study 3
Client: Vermont domiciled Single Parent Captive
Issue: The parent Company, a US based Civil Contractor, had established this Captive to insure its Construction Defects Liability exposure. For the first year, the capital and reserves were managed by its in-house Treasury function. The Captive’s Directors became increasingly convinced of the need to establish their independent control over the reserves, and felt that a short-term Treasury asset management style was not aligned to its long term business purpose. They were looking for independent advice to help them establish and control a US domestic Investment Portfolio.
Solution: We worked with the client to determine appropriate return and risk parameters for an Absolute Return portfolio and to design an Asset Allocation Model in line with the Captive Regulator’s guidelines. The model was populated with US domestic institutionally-priced Index Funds and Exchange traded Funds (ETF’s) that gave the client tax-efficient, global exposure to the major and alternative asset classes. We overlaid this with derivatives to protect against interest rate, currency and default risk, and established a reporting and review procedure. This included an integrated performance reporting facility that met the requirements of the Board and assisted the Insurance Manager to meet their statutory reporting obligations.
Case Study 4
Client: New Captive cell within a Cayman domiciled Segregated Portfolio Company
Issue: Although, at less than US$2m, the current capital and reserves available for investment are relatively small, this Captive Cell anticipates steady growth over the initial five years or so, before the impact of claims starts to be felt. The controlling shareholders of the Parent Company are experienced investors, and want to ensure that the capital and reserves held by the Cell benefit from the same level of investment sophistication they are used to seeing in their on-shore portfolios.
Given the owners’ understanding of investments, they are willing to accept some volatility within a capital preservation mandate, however they want to ensure that such volatility is carefully monitored and controlled.
Solution: We consulted with the Captive owners and Insurance Manager to establish a balance between the requirements of the owners and the Regulators. Through careful selection of collective investments to populate the agreed asset allocation model, we were able to satisfy the regulator’s requirement, while securing sufficient diversification within the portfolio to establish an absolute return benchmark of cash plus 3% per annum for the portfolio.