Captive Insurance CompanyFree Financial Model Download

A captive insurance company model projects underwriting profit, investment income, claims reserves, and dividend capacity to show whether the parent company can save money by self-insuring its own risks through a captive subsidiary rather than buying commercial policies. The model answers how much capital is required at formation, how quickly the captive returns profit to the parent through dividends, and whether the target return on invested assets (float income) is achievable.

Premium revenue flows in from the parent, calculated using actuarial transfer pricing to reflect the true cost of the parent's insurable risks. Net earned premium equals gross written premium less the reinsurance cession to a fronting carrier. Incurred losses and loss adjustment expenses (LAE) are modelled using a vintage-based payout pattern: 50% in the year of loss, 30% in year +1, 20% in year +2 (tail). Investment income is earned on the float (the lag between premium collection and claims payment), scaled by a bond portfolio yield (4.5% typical on short-duration investment-grade bonds). Operating expenses include captive management fees (10% of GWP), actuarial and audit (2.5% combined), legal and regulatory compliance, directors' fees, and Vermont insurance premium tax (0.214%). Dividend capacity is calculated from prior-year surplus and is constrained by Vermont's ordinary dividend rule (maximum 10% of surplus or prior-year net income, whichever is less).

Parent companies, risk managers, and insurance brokers use captive models to quantify premium savings vs. commercial insurance, stress-test the captive under catastrophe scenarios (spike in incurred losses, extended reserves), and project the cumulative dividend stream back to the parent over a 10-year time horizon.