When a company contemplates the formation of a captive insurance company as a part of its risk-financing strategy, it typically conducts a feasibility study. The feasibility study is actually quite often a requirement by domiciles but that should not be the sole reason it is conducted. The critical purpose of a feasibility study is to evaluate the efficacy of the captive investment. That is, the study answers the question, “What can I expect as a return on my investment in this captive insurance company?” While an investment in a captive is not the same as an investment in a new piece of business-related equipment or an investment in a new start-up division of the company, it nonetheless will have a financial impact that must be clearly evaluated and understood prior to formation. Because of the distinct differences between analyzing a captive insurance company investment and a more typical investment related to the business operations, it’s crucially important to involve risk-management advisors who are experienced in performing captive-feasibility studies. We will address the specific components of a feasibility study in chapter 8. When the feasibility study reveals that a captive insurance company will provide appropriate investment returns for the captive investor(s)   Read more…