What does a regulator look at in a captive's annual report?
Two filings: one that shows how the year went, one that argues the industry's case
Travis Wegkamp describes an annual report due at the start of March containing two documents. The annual statement is an officer signed, non independent financial picture: assets, liabilities, income, changes to officers, directors and ownership, general interrogatories, the lines and limits written, and the loss triangles. Reading it, the department checks that minimum capital has been maintained and looks for related party loans or dividends that should have had prior approval and did not. The second filing, the statement of economic benefit, is not about solvency at all.
The annual statement is the department's first look at how a captive's year went. Wegkamp emphasises that it is non independent, signed by a couple of the company's own officers rather than verified by an outside party, which is what makes it a quick initial read rather than an audit.
What it contains is a full financial picture plus the operating detail: any changes to officers, directors and ownership, the general interrogatories, the listing of lines and coverages with their limits, and the loss triangles showing what claims have actually cost.
Key takeaways
Utah captives file an annual report at the start of March containing an annual statement and a statement of economic benefit.
The annual statement is signed by the captive's own officers without independent verification, and the department uses it to confirm minimum capital and catch loans or dividends that skipped prior approval.
The statement of economic benefit records what the captive spends in Utah and exists to make the industry's case to the legislature for keeping the flat fee.
Wegkamp then names what the department is checking for beyond the financial picture. One is that the minimum capital requirement has been maintained through the year. The other is compliance archaeology: related party loans or dividends that required approval and never got it show up here, and he says the department can catch them in the filing.
That is worth reading alongside his repeated point about prior approval. The annual statement is where a captive that skipped a step finds out that the department noticed.
From the conversation
Travis Wegkamp
Director, Captive Insurance Division, Utah Insurance Department
“make sure that they've maintained the minimum capital requirement”
Transcript
Read the full transcript 8 turns
HostWhat are you looking at in the annual review of all the active captives in the state
Travis Wegkamp? The annual report that's due by March 1, the end of February, includes two reports, the annual statement, which is essentially a non-independent financial statement. Doing the assets, liabilities, the income statement, giving us updates on any changes to officers and directors ownership
Travis Wegkamp. There's the general interrogatories on that page where they answer some questions, and they provide a listing of their lines and coverages and the limits on those. And then there's the lost triangles as well, where we see what the claims payables and things have been for that year. And that's just signed by a couple officers of the company, non-independent verification. And that's for us to get a quick look and initial idea of how things went for them for the year, for us to look at and
Travis Wegkampdetermine those things, check a few other things as well, make sure that they've maintained the minimum capital requirement to see if there were any maybe related party loans or dividends or things like that should have gotten approval and didn't. We can catch those in there. The other statement included with that they need to submit is what's called a statement of economic benefit to the state of Utah. And
Travis Wegkampthat's for them to put all the direct monies spent in the state. For legal services, captive management, auditor, actuary services, if they do have a presence in the state, the fees paid
Travis Wegkampto the state as well as if they join the Utah Captive Insurance Association, paid fees to them, or if they had their local meeting here in the state, the cost incurred with that, the hotel nights, things of that nature. And that's something for us to continue to make the argument with the legislature and show them that, hey, yeah, this industry is benefiting the state and it's doing so in a real positive way,
Travis Wegkampregardless of us not having a premium tax. So that's for us to show and continue to get the support for just having the flat license fee and not having the premium taxes here in the state. It also asks them the amount of money or investments that they have here in Utah institutions and stuff, which is typically a pretty impressive number for us to show the legislature and show how big of an impact it can have on the economy, even if
Travis Wegkampnot directly, you know, those funds and local institutions become available for investments and other projects and things like that here in the state. So not even not just direct impact, but that indirect impact that these captives can have certainly can be substantial
Citations
Sources
- Captive, Utah Insurance Departmenthttps://insurance.utah.gov/captive
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