SRS provides disability insurance to give financial protection in the event that an employee is unable to work due to illness or injury. Employees pay the cost of coverage to ensure a tax-free benefit, and SRS raises employees’ salary to balance the cost of coverage at the same time.
What does captive mean in insurance terms?
A captive is a completely owned subsidiary created to offer insurance to its non-insurance parent firm in its most basic form (or companies). Captives are essentially a sort of self-insurance in which the insured owns the insurer outright. They’re usually set up to fulfill the owners’ or members’ specific risk-management requirements. Additionally, they may give large tax benefits, which may be critical to the company’s long-term viability and profitability. Captives are founded to cover a wide range of risks; virtually any risk that a commercial insurer will underwrite can be covered by a captive. A captive can be formed by any sort of company, from a huge multinational corporation (almost 90% of Fortune 500 companies have captive subsidiaries) to a charitable organization. The captive functions like any other commercial insurance firm after it is founded, and it is subject to state regulatory obligations such as reporting, capital, and reserve requirements.
Captive insurance firms have been around for more than a century. Frederic Reiss, a property-protection engineer in Youngstown, OH, created the term “captive insurance” in 1955. In 1962, Reiss founded Bermuda’s first captive insurance company. The captive market has seen substantial expansion during the last 30 years. According to AM Best Captive Center, there are about 7,000 hostages worldwide today, up from over 1,000 in 1980. Captives can be based and permitted in a variety of locations, both on and off the coast of the United States. The “domicile” of the captive is its major jurisdiction. The number of captive domiciles is increasing, and competition is fierce. Captive legislation exists in more than 70 jurisdictions. Bermuda is the greatest single jurisdiction in terms of captives, followed by the Cayman Islands. Guernsey, Luxembourg, and Ireland are the market leaders in Europe. Vermont is the largest domicile in the United States and is regarded as a pioneer in captive legislation.
- Any corporation that covers the risks of its parent and related companies, as well as controlled unaffiliated businesses, is known as a pure captive.
- Any domestic insurance company licensed for the purpose of making insurance and reinsurance under the terms of this article, including any company incorporated under the federal “Liability Risk Retention Act of 1986,” as amended, 15 U.S.C. 3901-3905. The risks, dangers, and liabilities of its group members, as well as employee benefit coverages, shall be covered by such insurance and reinsurance.
- Any entity that insures the risks of the association’s member organizations and their linked companies is known as an association captive.
- Industrial Captives: Any company that insures the risks of the industrial insured and their linked companies that make up the industrial insured group.
- Any alien captive licensed by the commissioner to transact insurance business through a business with its major place of business in the District is referred to as a branch captive.
- Rental Captives: A captive insurer designed to enter into contractual arrangements with policyholders or associations in order to provide some or all of the benefits of a captive insurance program while only insuring the policyholders or associations’ risks.
- Protected Cell Captives (also known as segregated cell hostages) are captives who are kept in a separate cell. Protected Cell Captives are identical to rental captives, with the exception that each user’s assets are legally protected from one another.
- Micro Captives are captive insurance companies with annual written premiums of less than $1.2 million. Smaller organizations that would otherwise struggle to create a captive can benefit from these.
- Risk Retention Groups: A captive insurer incorporated as a stock or mutual corporation, a reciprocal or other limited liability entity under 15 U.S.C. 3901-02.
Captives come in a wide range of sizes and shapes, allowing companies to tailor their strategies to their own needs. This diversity aids a company’s ability to finance risk in a manner that is appropriate to its specific dynamics and structure. Companies may afford to be innovative and agile in their short- and long-term risk-management strategy without being obliged to conform into a uniform captive model. And the list above is far from complete; as firms develop more sophisticated and imaginative methods to employ captives effectively, the list will continue to grow.
The NAIC and state insurance regulators have been focusing their attention in recent years on the life insurance industry’s use of captive insurance businesses to finance reserves required by existing requirements. For certain term life insurance plans, these reserves are known as “XXX reserves,” while for certain universal life insurance policies, they are known as “AXXX reserves.” When statutory reserves on these policies are deemed excessive or redundant, life insurers have increasingly turned to captive reinsurers to fund the redundant statutory reserves.
The National Association of Insurance Commissioners (NAIC) and state insurance regulators have made tremendous progress in bringing more standardization to captive reinsurance agreements. The NAIC Executive (EX) Committee and Plenary adopted Actuarial Guideline XLVIII (AG 48) in December 2014, and it went into effect on January 1, 2015. AG 48 is a key item needed to implement the XXX/AXXX Reinsurance Framework (Framework) as adopted in 2014. It defines the rules for new XXX and AXXX reserve financing transactions executed after the effective date and is a key item needed to implement the XXX/AXXX Reinsurance Framework (Framework) as adopted in 2014. A detailed action plan for life insurance reserve financing transactions is outlined in the Framework. Furthermore, the implementation of principle-based reserving (PBR) regulations for these transactions is likely to diminish the reserving incentive.
Furthermore, the Financial Stability Oversight Council (FSOC) listed variable annuity and long-term care captive transactions, as well as XXX/AXXX transactions, as areas of particular concern in its 2014 Annual Report. The NAIC Financial Regulation Standards and Accreditation (F) Committee recently amended the Part A: Laws and Regulations Accreditation Preamble in response. Captive reinsurance transactions for XXX/AXXX, variable annuity, and long-term care business are now the focus of the modifications. The Variable Annuities Issues (E) Working Group was formed by the NAIC to “research and address, as appropriate, regulatory issues resulting in variable annuity captive reinsurance agreements.”
The Risk Retention Group (E) Task Force is considering risk retention groups (RRGs) that are formed as captives. The Group (E) Task Force released findings in November 2020 about how to establish greater standard regulation and oversight for risk retention groups that operate as captives.
Captives were traditionally founded by non-insurance corporations. Life insurers, on the other hand, turned to captives to “fund” ostensibly “reserve redundancies” required by Regulation XXXi and AXXXii. Life insurers’ captives and Special Purpose Vehicles (SPVs) differ significantly from captives employed by non-insurance corporations as a form of self-insurance.
Actuarial Guideline 48 (or AG 48) was adopted by the Principle-Based Reserving Implementation (EX) Task Force and has been in effect since January 1, 2015. The NAIC creates national guidelines for XXX/AXXX captive reinsurance transactions with the adoption of AG 48. The sorts of assets retained in a backup insurer’s statutory reserve are regulated by this guideline.
XXX/AXXX captive reserve trades are not prohibited under AG 48. It provides universal, national standards so that all businesses and authorities take the same approach, resulting in a significantly more fair playing field than now exists. For the most part, AG 48 is also relevant prospectively. It does not apply to policies issued before January 1, 2015, unless they are part of a captive reserve financing structure at the time AG 48 takes effect.
Part A: Laws and Regulations Accreditation Preamble was revised in May 2015 by the Financial Regulation Standards and Accreditation (F) Committee. The amendments include captive insurers and special purpose vehicles (SPVs) in the accreditation program. Captives and SPVs that assume XXX or AXXX business, variable annuities, and long-term care business will be regulated under the new rules. The changes become effective on January 1, 2016.
Aside from XXX/AXXX, the NAIC started a project in 2015 to change the present reserving and RBC rules for variable annuities. Unlike the reserving issue for XXX/AXXX, this initiative is focused on the non-economic volatility that is purportedly produced by the current regulations, rather than the required quantity of reserves. Captives have been utilized by life insurance to help reduce non-economic volatility. The NAIC’s Financial Condition (E) Committee approved a new variable annuities framework and related charges to other NAIC groups in July 2018, paving the way for the necessary wording adjustments to existing statutory reserving requirements and capital requirements. PBR compliance has been necessary from January 1, 2020, unless an exception is granted on a case-by-case basis.
The Financial Regulation Standards and Accreditation (F) Committee approved the Term and Universal Life Insurance Reserve Financing Model Regulation (#787), also known as the XXX/AXXX model, as a new accreditation standard during the 2019 Fall National Meeting. On August 14, 2020, the Plenary adoption was concluded.
Actuarial Guideline XLVIII, which was approved by the Life Actuarial (A) Task Force on February 20, 2020, and the Life Insurance and Annuities (A) Committee on July 10, 2020, reaffirms the critical need for uniform national standards governing XXX and AXXX reserve financing arrangements in accordance with the PBRI (Principle-Based Reserving Implementation) Task Force framework. In 2020, a minor adjustment was made to match AG 48 with revisions to model #787. The sunset provision in AG 48 states that once Model #787 or a substantially equivalent regulation takes effect in a state, AG 48 becomes ineffective.
Because captive insurance is diverse and developing, prescribing one-size-fits-all review standards can be challenging. As a result, Actuarial Guideline XLVIII is a minimum requirement rather than a panacea for all possible scenarios. “A regulator should impose obligations in addition to those set out in this actuarial guideline if the facts and circumstances necessitate such action,” the Guideline states directly.
What is an integrated insurance program?
Integrated Risk is a risk financing strategy that combines multiple coverages into a single multiyear policy or program with one or more shared liability limitations. These programs can assist insureds in making better use of their risk capital while also potentially lowering risk transfer costs.
What is strategic business risk?
Internal and external events that may make it difficult, if not impossible, for an organization to fulfill its objectives and strategic goals are referred to as strategic risk. These dangers can have serious long-term ramifications for organizations.
Given the importance of this type of risk, we’ve put together this fast guide to help you learn everything you need to know about strategic risk, including examples, definitions, and a general overview of strategic risk management.
How do I pay with SRS?
There are several ways for you to contribute to SRS with us. Contribution made by check
- You can deposit your check at any DBS/POSB branch or a Cheque Deposit Box situated throughout the island.
What can I do with SRS?
If you make more than $40,000 per year, you might think about using the SRS to get tax relief and pay less income tax.
Even if you don’t make $40,000 a year, you can start an SRS account and make a $1 deposit to “lock-in” your retirement age.
As a result, you’ll need to invest your SRS funds in order to fight inflation and expand your retirement fund.
Remember to pay your SRS contributions by the 31st of December each year to be eligible for tax reduction in the current assessment year.
The Supplementary Retirement Scheme (SRS) has all you need to know:
- SRS contribution, CPF contribution, or bank savings account? Which is better for my golden years?
What are the disadvantages of captive insurance?
Because the company is effectively self-insured, it will need to raise a large sum of money to maintain in reserve in case of a claim. If the entity undervalues its need for protection or suffers a catastrophic loss, it may not have enough cash on hand to provide effective protection. If the corporation is forced to use other assets, this could have a significant negative impact on its bottom line.
Is captive insurance a good idea?
. Despite the fact that their execution and legal framework are frequently misunderstood, the financial benefits might be highly appealing. Captive insurance, according to some experts, is the best thing since sliced bread. Others are hesitant to involve their clients in the creation of a prisoner, knowing that the IRS closely monitors them. This article explains what captive insurance is and why the Internal Revenue Service frequently disputes it, as well as why, when done right, captive insurance can be a valuable instrument. The post also explains how to set up and run a captive to avoid IRS penalties.
Are captive insurers good?
Businesses who understand their risk profile better than the typical market, have superior loss histories, and have more strong risk management in place, develop and use captive insurance companies. A captive can be utilized in this situation to shift costs to the insured.
Why are finite risks not considered insurance?
Financial insurance/reinsurance, unlike a limited transaction, usually does not have enough risk transfer to meet accounting criteria, making it ineligible to be classified as insurance. To put it another way, it’s more of a risk financing method than a risk transfer.