1. Captive Proposal
for Property Owners

2. Introduction
Commission earned from insurance premiums is often a large revenue stream to property owners. There is increasing regulatory pressure to move to a fully transparent system. Such disclosure would prejudice this income stream.
The use of a captive or protected cell could largely maintain this revenue stream for the property owner.

3. The Opportunity
To help maintain revenue levels, an option for property owners to consider is to consolidate the risk of insuring their properties, through the use of captive insurance.
The method is fairly straightforward. A UK insurer would issue the policy to the property owner and an element of the premium payment would represent a reinsurance premium, paid onwards by them to a captive insurance vehicle, which would cover part of the risk.
If there is a record of low claims, and this situation continues in the future, the majority of the reinsurance premium paid could be profit within the captive insurance vehicle. Risk, of course, will always exist but in many commercial property portfolios claims are infrequent and it would be the low level risk that would be covered in the captive.

4. Captive Insurance
A captive insurance mechanism can be arranged through either a captive insurance company owned by a landlord or through a cell in a protected cell captive insurance company owner by a third party. This second option generally involves lower costs and less management time.
Standard claims reporting clauses insist that claims are reported within thirty days. This means that within sixty days of the end of the reporting period, comprehensive management accounts for the cell can be produced. After allowing for an adequate reserve allocation, a dividend could then be declared on the underwriting profit.

5. The Proposal Our proposal provides the following: AA rated Insurers
Unique policy wording
Premium collection arrangements
Claims handling and settlement
Maintain current relationship with tenants
Average free policy
Low deductibles
Full cover in respect of vacant and voids
Mulberry Insurance Services, Principal-led with 25 years of experience

6. Current Programme Tenants Prop Co Vacant / Voids Insurer Pool Re
We do not propose to change your existing arrangement
Tenants
Prop Co
Vacant / Voids
Insurer
Pool Re

7. Shareholder of captive
The Proposal
The captive position would look like this
Tenants
Prop Co
Vacant / Voids
Insurer
Pool Re
Shareholder of captive
Captive as reinsurer

8. The Proposal Tenants Prop Co Vacant / Voids Insurer
As you can see the captive sits behind the existing insurer and the tenants and Prop Co relationship with them remains unchanged
Tenants
Prop Co
Vacant / Voids
Insurer
Captive as reinsurer

9. Capped with annual limit of premiums
Proposed Programme
Prop Co
Insurer
Captive takes GBP250K
any one loss
Capped with annual limit of premiums
+ GBP250K
Terrorism 100%
with Pool Re

10. Limits Captive accepts the first GBP250K of each loss
The captive maximum possible loss in a year is GBP250k per annum in excess of the premium it will receive
Assume market premium Gross GBP4m
Captive premium expected to be GBP2.5m
Expected claims GBP1.1m
Profit range GBP1.4m to max loss GBP250k
Above figures exclude broker fees and commission

11. Downside Risk Managed
The worst possible scenario for the captive would be a loss of GBP250k in excess of premiums.
This would require losses to be 150% higher than have been actuarially assessed.

12. Proposed Next Step
We would be pleased to further explain this concept and answer your questions
A feasibility study would confirm the viability
Market negotiations
Establishment

13. Property Owner’s Operating Captives

14. End of presentation