Captive Insurance

An experienced attorney who can guide you through the process

Insurance is a big expense for many businesses. Some businesses choose to self-insure by setting up a captive insurance company. Many have chosen Hawaii to set up these companies, but the laws are complicated. Hongo Law Office, LLLC can help you set up and maintain a captive insurance company for your business.

Attorney Yuka Hongo has lived and worked in Japan and the United States. She speaks Japanese and English fluently and has extensive experience conducting legal transactions in both languages. She understands the state laws that regulate captive insurance companies and can go over the risks and benefits involved.

What is a captive insurance company?

Captive insurance allows a business to provide its own insurance. Some businesses may feel traditional commercial insurance coverage is too expensive. Others may have trouble finding an insurer. A business can set up a subsidiary company – or captive – to provide insurance to itself to help manage risk.

Hawaii is a very popular captive domicile. Reputable companies of all sizes from around the world have chosen to set up and run their captives in this state. The Department of Commerce and Consumer Affairs Insurance Division has a Captive Insurance Administrator that oversees and regulates the hundreds of captives that are located in  Hawaii.

What are the benefits of a captive insurance company?

There can be many benefits to a captive if it is set up and managed properly. The main one is that it reduces a business’s reliance on traditional commercial insurance companies, which often offer coverage at a markup to cover their own costs and make a profit. By using a captive and running it effectively, a business can reduce its insurance costs.

Captives also offer stable pricing from year to year, which can help businesses with financial planning. A captive can provide customized insurance, and, in some cases, it can provide insurance that is unavailable in the marketplace. Captives can also provide significant cash flow benefits as they manage claims and time payments to suit their needs.

What are the risks of a captive insurance company?

Setting up a captive requires a substantial commitment of capital. There is a minimum financial commitment that is set by the insurance commissioner in Hawaii. While the captive program is structured to try to minimize such risk, there is always the risk of adverse underwriting results that can lead to greater costs.

There also the internal administrative costs to keep the captive running. These include implementation costs, management fees, regulatory fees and taxes. There are annual filings that need to be made with the state. The company also needs to hold regular board of director’s meetings and shareholder meetings.

What are the different types of captive insurance companies?

There are five classes of captive insurance companies in Hawaii:

  • Class 1 – The insurer is completely owned by one company and reinsures the risk of another insurance company (reinsurance).
  • Class 2 – The insurer is complete owned by one company and provides direct insurance coverage, as well as reinsurance.
  • Class 3 – The insurer is owned by multiple businesses, many times to get coverage or policy limits beyond what is available from traditional insurers. (These are also called group captive or association captive insurance companies.)
  • Class 4 – The insurer is established by a third party. Businesses have their own cell or series business unit (SBU) within the captive. (These are also called cell captive or rental captive insurance companies.)
  • Class 5 – The insurer provides reinsurance or excess insurance only.

Most captives are “pure captive” or “single parent.” They are formed by one company to provide its own insurance needs.

Creating a captive that works for your business

Attorney Hongo is ready to advise you on the formation and operation of a captive insurance company in Hawaii. She can guide you through the process of organization, licensing and initial capitalization. Her goal is to help you set up the company in a way that maximizes benefits and minimizes risk.

She can also advise and assist you with matters related to the ongoing corporate maintenance of the captive. This includes company administration, and adherence to state laws and regulations, board of directors and shareholder’s meetings.  She can also offer advice on the evolution of the captive as your business grows.

Learn more about how Hongo Law Office, LLLC can assist you with setting up a captive insurance company. Contact us to schedule a consultation at our Honolulu office. Attorney Hongo also meets with clients in Japan, which she typically visits twice a year. She can review your business situation and guide through the process of setting up a captive insurance company that meets your needs.