How to take a captive proposal to your board

What is the board actually being asked to decide?

Forming an insurance subsidiary, or joining a sponsored captive facility, puts the insured's capital at risk. Shareholders need to understand why their capital should be used to create underwriting capacity.

Airmic's guide, written from the perspective of the parent company's board rather than the captive's board, calls setting up a captive "a significant decision for any organisation". So the decision is not only whether it saves money. It is whether the purpose fits the business, who will run it, and how the company would leave it.

Remember who is advising: brokers, managers and consultants may lean towards a "go" recommendation.

How much capital is at risk?

The feasibility study "needs to address the possibility that risk capital may be eroded as well as show how the value of the captive can be measured".

Airmic suggests boards ask about projected set-up costs, the ongoing capital requirements needed so the captive can meet its obligations, and the operating expenses of running it, including administration, staff, technology, investments and accounting fees. These are then measured against likely premium savings and cash flow benefits.

Ask to see projections under both expected and adverse loss scenarios. One regulator's business plan template asks applicants to project results under an Expected Scenario and an Adverse Scenario, and to give five-year pro forma financial projections and the amount and source of initial capitalisation.

The board should also understand the maximum risk the captive would keep. That same template asks for the captive's "maximum retained risk (per loss occurrence and annual aggregate)".

What does good governance look like?

Airmic says the captive's board should have diverse expertise, including insurance, finance, risk management and law, with the parent organisation represented. It should also have clearly defined roles, a risk appetite statement, internal controls and a reporting framework covering financial performance, risk exposure and compliance.

Practitioners speaking at a 2026 captive conference described three core elements: the right board composition, clearly defined roles and responsibilities, and reporting that supports informed decisions. They said board members need enough knowledge of the captive's operations and finances to decide, and that service providers should explain actuarial reports and audits rather than simply submit them for approval.

Regulators also set expectations. One state regulator's guidance says its examiners review board minutes for discussion of significant topics, and expects the board to discuss material changes such as loan backs and dividend distributions before they are submitted. Take domicile-specific advice on what applies to you.

Airmic notes that a captive brings governance procedures, a reserving process, proper actuarial controls and ring-fenced capital.

What are the exit options?

Airmic's twelfth question asks whether the organisation will have an exit strategy covering the possible dissolution of the captive. The strategy should set out clear triggers, which might include changing corporate strategy, financial performance issues, regulatory challenges, or mergers, acquisitions and divestitures.

It should also say whether it covers full dissolution, sale or conversion to another type of entity, with a step-by-step process, a financial assessment and a communication plan. The guide notes the need to seek regulatory approvals, consider how the captive's assets would be treated in liquidation, and ensure pending claims can be settled in an orderly way.

Ask for this before approval, not after.

Which questions should directors ask?

Airmic's guide is organised around twelve questions, including: what strategic goals would be met and how well aligned they are with the organisation's purpose; what the financial implications are; what factors belong in the risk analysis; what investment policy the captive should adopt; how governance and oversight should be set up; how and by whom operations will be managed; who the strategic stakeholders are; and how the organisation will ensure the captive continues to align with its objectives.

Add questions of your own. What alternatives were compared, including commercial insurance and self-financing? The feasibility analysis is meant to justify transferring retained risk to a captive rather than using those alternatives. Who prepared the study, and will they manage the captive? Captive.com suggests telling the preparer at the outset that it will not manage the captive.

Ask about ongoing oversight too. Directors reviewing an actuarial report should ask what caused any adverse development, whether it indicates a broader trend and how it could affect the captive.

What should you bring to the board meeting?

Bring the evidence the proposal rests on. A feasibility study normally asks for current and projected exposure values, five years of prior loss history by line of business, the insured's financial statements, current policies and premium and claims payment schedules.

Bring a short paper that states the purpose, the alternatives considered, the capital to be committed and how it could erode, the governance structure, the service-provider arrangements, and the exit triggers. The business plan template mentioned above also expects a description of the management team, board, captive manager and service providers, plus an organisation chart showing the captive's position relative to the parent.

Finally, ask the board to decide in stages if it prefers: approve further study first, then formation. This article is general information, not tax, legal or investment advice; take domicile-specific advice before committing.

Sources

• Airmic with McGill and Partners, Captive Insurance: Perfecting Governance, A Guide for Board Directors of Parent Companies and Partnerships (2025 guide; read 2 November 2026)
• Captive.com, What Are the Key Elements of a Captive Feasibility Study? (no date shown; read 2 November 2026)
• Captive.com, Captive Insurance Governance Requires Active Board Engagement (21 August 2026; read 2 November 2026)
• Connecticut Insurance Department, Captive Insurance Company Corporate Governance Guidance (Rev. May 2021; read 2 November 2026)
• New Jersey Department of Banking and Insurance, Captive Insurance Company Business Plan (no date shown; read 2 November 2026)