Captive Insurance Company

The model focuses on a pure single-parent captive that underwrites the parent's own property and casualty risks. Gross written premium is set by actuarial pricing of those insurable risks and grows 5% annually, reflecting parent exposure and pricing adjustments.

• A fronting carrier writes the business for regulatory compliance; the captive then assumes 100% of the risk through a quota-share reinsurance arrangement. Because the parent retains underwriting profit instead of paying a commercial carrier, the template evaluates premium savings, investment income on float, and risk-adjusted return on capital.
• All operating costs are expressed as percentages of gross written premium, so expenses scale with premium volume, while loss costs are tied to net earned premium.

Premiums cascade from gross written to net earned: gross written premium minus ceded premium gives net written premium, which is further reduced by the change in unearned premium reserve to arrive at net earned premium. Incurred losses equal net earned premium times an assumed loss ratio, with loss adjustment expenses shown separately.

• Each accident year's incurred losses then pay out over a three-year pattern, with 50% in the year of incurrence, 30% in the following year, and 20% in the third year. A vintage triangle tracks paid and unpaid balances by accident year, so total paid claims in any calendar year sum across all open vintages.
• Revenue includes net earned premium, investment income on the float, and ceding commission income; after operating expenses and tax, the result is net income.

The income statement reports revenue, costs, and net income, with separate lines for incurred losses and loss adjustment expenses, plus distinct loss and combined ratios. The balance sheet shows investments as the core asset, loss reserves, unearned premium reserve, and equity comprising initial capital plus retained earnings.

• A cash flow statement reconciles operating, investing, and financing activities, treating portfolio growth as a use of cash and dividends as a financing outflow. Key metrics include premium-to-surplus ratio, checked against a regulatory limit; return on equity; payback period based on cumulative net income versus initial capital; and cumulative dividends returned to the parent.
• Dividend capacity is computed from prior-period equity to avoid circularity and to reflect the regulatory test using prior year-end surplus.

This template is built for decision-makers weighing whether to form a captive, how much capital to inject, and how much cash can be extracted over time. It lets users adjust assumptions such as gross written premium, cession rate, loss ratio, payout pattern, portfolio yield, and dividend payout to see effects on capital adequacy and payback.

• The dividend policy models ordinary dividends limited by prior-period surplus and net income, reflecting the Vermont regulatory framework. The model includes validation checks for balance sheet integrity, premium leverage, non-negative reserves, and payout pattern sums.
• Practical use is to compare base and stress scenarios, assess capital buffers, and understand the timing of returns to the parent. It supports a first-pass feasibility analysis, not detailed actuarial pricing.