Commercial Insurance Feasibility Report

What a good one includes

• A minimum of five years of historical loss runs, actuarially projected to estimate future losses under a self-retained model.
• Pro-forma financial statements illustrating the cash flow, balance sheet impact, and net present value comparison of alternative risk structures versus traditional programs.
• A detailed breakdown of the initial capitalization requirements, collateral obligations, and letters of credit needed to satisfy regulators and fronting carriers.
• An itemized budget for third-party administrators, actuarial services, legal setup, fronting fees, and reinsurance costs required to run the program.
• A comprehensive review of the tax implications, premium tax responsibilities, and regulatory compliance standards for the selected domiciles.
• A clear determination of the optimal attachment points and aggregate limits for excess reinsurance to protect against catastrophic losses.

Common mistakes to avoid

• Relying on unadjusted historical loss data without factoring in inflation, payroll changes, or industry-specific risk trends.
• Underestimating the ongoing operational costs and administrative burden of managing a captive or self-insured program.
• Choosing a domicile based solely on popularity rather than aligning the choice with your specific regulatory needs and investment flexibility.
• Neglecting to secure buy-in from key internal stakeholders, such as legal and tax departments, early in the feasibility process.

Frequently asked questions