CAPTIVE BASIC WORKSHOP
Hotel Intercontinental, Singapore
September 16-17, 2009
INTRODUCTION TO CAPTIVES
Carlos H. Yturzaeta
Chairman, Marine Underwriters Association of the Philippines, Inc. (MUAP)
PRESENTATION OVERVIEW
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HISTORY OF CAPTIVES
WHAT IS A CAPTIVE
TYPES OF CAPTIVE
ADVANTAGES/DISADVANTAGES
WHO SHOULD CONSIDER A CAPTIVE?
SETTING UP A CAPTIVE
SELECTION OF DOMICILE
MANAGEMENT OF
CAPTIVE
CONVINCING MANAGEMENT
ACKNOWLEDGEMENT
HISTORY OF CAPTIVES
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1800’s – New England textile formed a captive
that became Factory Mutual
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1929 – Church Insurance Co., one of the
earliest group captives, was formed by
the Episcopal Church
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1935 – Mahoning Insurance Co., established
by Youngstown Sheet & Tube Co.
HISTORY OF CAPTIVES
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1960’s – About 100 captives
were formed.
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1970’s - Captives became popular as a
vehicle for every large national and
multinational companies to insure difficult-toplace risks and to combat “hard market”
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1980’s – Captive has grown nearly 300%
more than double the commercial market due
to liability insurance crisis.
HISTORY OF CAPTIVES
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2000 – About 5,000 captives worldwide generating
US$28 billion.
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Today, there are close to 5,000 captives in different
domiciles all over the world and being one of the
biggest sources of capacities* in the RI market with
premiums about US$50 billion and assets of about
US$250 billion
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Developing Asian Market for captives.
*In some years, Bermuda and other domiciles provided at least 30% capacity.
WHAT IS A CAPTIVE?
 A closely held insurance company whose
original purpose is/was to insure its shareholders
risks.
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A closely held insurance company whose
insurance business is primarily supplied by and
controlled by its owners, and in which the
original insureds are the principal
beneficiaries.
WHAT IS A CAPTIVE?
 A captive insurance company primarily insures the
risk of its owners and sometimes related or affiliated
firms and returns underwriting profit and investment
income.
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A captive insurance company’s insureds have direct
involvement and influence over the company’s major
operations, including underwriting, claims
management policy and investments.
WHAT IS A CAPTIVE?
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A captive is a genuine insurance or
reinsurance company, owned either by a nonlife insurance company, a group of insureds
or others wishing to insure or reinsure
primarily the risks of the owners of their
affiliates.
TYPES OF CAPTIVES
 Single
Parent, i.e. Petron, San Miguel, Smart.
 Association – Lawyers, Accountants, Engineers,
Religious, Other professionals, etc.
 Industry – Shipping, Oil, P&I, Banking,
Telecommunications, Hotels, Pharmaceuticals, etc.
 Rent-a-captive
 Protective
Cell
SINGLE PARENT CAPTIVE
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Pure ( only writes parent’s, subsidiaries
and affiliates’ like Petron’s Overseas
Ventures Insurance Corp in Bermuda.)
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Monitored by Parent (at and from the
principal office of the captive owner)
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Managed by a Domiciled Company (dayto-day administration) normally called
Captive Manager.
Reinsurance Placement Under a Captive Arrangement
PETRON
CORPORATION
PETROGEN
Philippines
CAPTIVE/OFFSHORE
REINSURER
PRINCIPAL/ORIGINAL INSURED
LOCAL INSURER/FRONTING
COMPANY
OVINCOR
Bermuda
FOREIGN
REINSURERS
(Europe, Scandinavia,
Lloyds)
LOCAL AND
FOREIGN
REINSURERS
ADVANTAGES OF A CAPTIVE
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INSURANCE EXPENSE/COST CENTER TURNED INTO A
PROFIT CENTER
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STABILIZATION OF PRICING VS. FLUCTUATING
INSURANCE COSTS
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CUSTOMIZED INSURANCE COVER (TAILORED FIT
INSURANCE PROGRAM)
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ACCESS TO GLOBAL REINSURANCE MARKETS
ADVANTAGES OF A CAPTIVE
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REDUCED RELIANCE ON COMMERCIAL INSURANCE
MARKET.
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IMPROVED CLAIMS HANDLING & CONTROL OF CLAIMS
ADMIN COSTS.
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REDUCTION FROM BUREAUCRATIC GOVERNMENT
REGULATIONS.
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OPPORTUNITIES FOR OTHER BUSINESS ENDEAVORS.
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SAVINGS FROM IMMEDIATE TAX ON PROFIT
DISADVANTAGES OF A CAPTIVE
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ADMINISTRATION – Time, Talents & Efforts
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FINANCIAL – Expertise, investment, profitability
DON’T YOU THINK THIS BEAUTIFUL PLACE
FAR OUTWEIGHS THE DISADVANTAGES?
WHO SHOULD CONSIDER A CAPTIVE?
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Any organization that spends about US$1 million in
insurance premiums and desires to recover* a portion of
that thru a risk financing vehicle called, captive.
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An organization whose insurance cover needs to be
tailored fit (special risks).
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An organization whose insurance program is greatly
affected by market cycles (hard market, lack of capacity,
etc).
*Petron was able to recapture average of 38% or approx. P1 Billion
of its insurance premium in the last 12 years.
INSURANCE EXPENSE RECOVERED AS SAVINGS
PREMIUM RECOVERY/SAVINGS THRU CAPTIVE
(in million pesos)
1997
Premium Paid by Petron
Net Income (Petrogen)
Net Income (OVINCOR)
Gen. & Admin. Expenses
Savings to Petron
Recovery (%)
1998
1999
2000
160.0
174.2
160.5
191.7
21.9
37.5
41.5
68.9
31.9
53.8
38.2
75.7
36.6
78.1
19.8
88.7
9.7
9.4
14.0
19.6
63.5
85.1
92.1
108.3
40%
49%
57%
57%
Note: The interest income on premium held and the interest income on the
capital invested were not shown as these interests were even out.
WHO SHOULD CONSIDER A CAPTIVE?
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An organization with a good loss record/loss
ratio and is proud to share in its own risks, a
proof that the company is managed
professionally.
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An organization that invests in a comprehensive
Enterprise-wide Risk Management Program and
is able to sustain it through a risk finance
vehicle called, captive.
Who are into Captives in the Philippines
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*PETRON CORPORATION (Bermuda)
Standard Insurance Company (Bermuda)
SMART PHILS (Grand Cayman)
SAN MIGUEL CORP (Bermuda)
ZUELLIG PHARMA CORP (HK)
MANILA ELECTRIC COMPANY
- 1995
- 1997
- 2000
- 2004
- 2005
- 2007
*Petron’s OVINCOR, Bermuda has started with US$1.5 M. in Nov. 1995. Now it has a
Networth of over US$13 Million. Petron’s “controlled” insurer, PETROGEN, a fronting
company for OVINCOR started with P100 M in 1996 and has reached a paid up a
capital of about P1Billion.
From such success story, Saudi Aramco started its captive, STELLAR, Bermuda in
2001 with a capital of US$10 million. It was gathered that Stellar pumped in another
US$200 million early 2007 to be able to increase retention and write some more of its
subsidiaries and affiliates.
SETTING UP A CAPTIVE
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Feasibility Study & Management Approval
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Roadshow and get commitment from existing major
reinsurers for support.
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Captive Application (suggested domicile –Asian?)
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Selection of Captive Manager and other service
providers like auditor, corporate secretary, legal counsel,
depository bank
SELECTION OF DOMICILE
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REGULATORY ENVIRONMENT
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REASONABLE CAPITALIZATION
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PROFESSIONAL SERVICES
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EFFICENT PROCEDURES
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TAXATION
SELECTION OF DOMICILE
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LOWER OPERATING COSTS
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LOCAL LANGUAGE, CURRENCY
CUSTOMS
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ECONOMIC, POLITICAL AND
SOCIAL STABILITY
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STRATEGIC LOCATION
AND
SELECTION OF DOMICILE
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TIME ZONE
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STABLE BUSINESS ENVIRONMENT
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INFRASTRUCTURE
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OTHER CONSIDERATION
- Telecommunications
- Rest & recreation
- Golf and Shopping
Some Popular Domiciles
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BERMUDA
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CAYMAN ISLANDS, BARBADOS
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USA DOMICILES-VERMONT
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HONGKONG & SINGAPORE
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LABUAN, MALAYSIA
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GUERNSEY, ISLE OF MAN
MANAGEMENT OF CAPTIVE
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CAPTIVE MANAGER
– Independent
– Working for Parent/Owners
– “All-in-one-packaged service”
– “One stop shop”
SELF
MANAGEMENT
CONVINCING MANAGEMENT
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LONG-TERM COMMITMENT
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WELL-PLANNED
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IN-HOUSE EXPERTISE
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IF DECIDED, we, and all other service
providers in this basic workshop are
committed to serve your needs!
CAPTIVE BASIC WORKSHOP
Hotel Intercontinental, Singapore
September 16-17, 2009
ACKNOWLEDGEMENTS
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Bermuda Captive Forum, Sponsored by Petron Corporation,
Petron Building, Makati City, Philippines, 1997
Guam Captive Forum,, Sponsored by Pacific Risk Managers
(Guam), Inc, Tower Club, Makati City, Philippines, May 2004
Captive Forum, Sponsored by Sinser of Sweden at the JW
Marriott Hotel, Hongkong, 1998
Asia Pacific Rendezvous, Sponsored by RIRG/Captive
Review/Pageant Media of UK at the Marina Mandarin Hotel,
Singapore, July 2008
Captive: Alternative Risk Finance Forum, Sponsored by Zurich
Financial Services, Inc, J. W. Marriott, Jakarta, Indonesia,
November, 2006
Basic Captive Presentation, Sponsored by the Insurance
Commission of the Philippines, Manila, June 2008
Captive Insurance Companies Association (CICA) seminars in
Arizona, USA, 1994-1995
SPEAKER PROFILE
CAPTIVE BASIC WORKSHOP
CARLOS H. YTURZAETA
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Certified Public Accountant (CPA); Bachelor of Science in Commerce, Accounting.
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Current Involvment:
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Lecturer, Insurance Institute of Asia & the Pacific (IIAP
Chairman, Marine Underwriters Association of the Philippines, Inc (MUAP)
Director, Philippine Register of Shipping, Inc (PRS)
Director, Environment & Risk Management, Philippines, Inc.
Active Member: Association of Certified Public Accountants in Public Practice (ACPAPP)
and Philippine Institute of Certified Public Accountant (PICPA)
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Consultant/Speaker Trainor on: Enterprise Wide Risk Management/Captive Insurance/
Accounting, Audit and Tax/Property Management/Estate Planning, DMP, Crisis Mgnt,
Claims Admin. Systems and Procedures, Emergency Management, Business Continuity
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Established the first Philippine Captive in Bermuda (Overseas Ventures Insurance Corp.or
OVINCOR), a single-parent captive reinsurance company, 1995.
Established/Gen. Manager of-the first “controlled” Phil. Insurer (Petrogen Insurance
Corporation), a fronting company for OVINCOR, 1996.
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25 years in the largest oil & energy conglomerate in the Philippines-mostly in finance,
audit & accounting, government reports & compliance, property & records management and
risk and insurance management.
CAPTIVE BASIC WORKSHOP
Hotel Intercontinental, Singapore
September 16-17, 2009
Thank You!
Enjoy the rest of the day!
CARLOS H. YTURZAETA, CPA
Chairman, Marine Underwriters Association of the Philippines, Inc (MUAP)
Email: < carlos_yturzaeta@yahoo.com.sg >
Cellphone/Mobile: +63 917 536 0937