What does a regulator look for before approving a captive?
Structure first: who owns the risk, and is the transfer real
Fenhua Liu starts with structure rather than paperwork. The first questions are who owns the risk, who is insuring it, how strong the parent is, and whether the arrangement actually meets risk distribution and risk transfer requirements. From there the department reads the business plan and feasibility study, the corporate governance, the service providers chosen, and whether capital is adequate for the liabilities to be written, including aggregate limits and any fronting or reinsurance behind them.
The ordering of her answer is the substance of it. She does not begin with documents, she begins with the shape of the arrangement: who owns the risk and who insures it. That is the question underneath every captive, and an application that cannot answer it cleanly has a structural problem no amount of filing will fix.
Risk distribution and risk transfer come next in the same breath. Those are the tests that separate insurance from a funded reserve, and Liu treats them as threshold questions rather than technicalities.
Key takeaways
Liu reads structure before paperwork: who owns the risk, who insures it, the parent's strength, and whether risk distribution and transfer requirements are genuinely met.
Business plan, feasibility study, corporate governance and the chosen service providers are read together as evidence the captive will operate like a real insurer.
Capital is assessed against the liabilities and aggregate limits proposed, with fronting and reinsurance read as part of the same solvency picture.
Then the department reads the plan. The business plan and the feasibility study are what turn a structure into a programme, and Liu pairs them with corporate governance, which she returns to more than once. Her framing is that a licensed captive has to operate like a real insurance company to meet its owner's need, not simply hold a licence.
The service providers are part of the same judgement. Who the applicant has chosen tells the department something about how the captive will be run.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“When we approve the captive, we look at a big structure first, who owns the risk?”
Transcript
Read the full transcript 7 turns
HostBefore a captive writes a single policy, the department has to approve the captive. What does the department look for
Fenhua Liubefore it approves the captive? When we approve the captive, we look at a big structure first, who owns the risk? We ensure the risks, and what's the parent's strengths, and is the captive meet the risk distribution or risk transfer requirement? Also, do they have a very solid, a solid, busy plan, and do they have a good visibility to study? And especially
Fenhua Liu, do they have a very good corporate government? Make sure the capital is not only licensed. They're going to operate like a real insurance company to meet the owner's need. And we also look at the survey providers. What they choose, make sure all the survey providers are very highly qualified, and they have enough capital to support the liability they're going to write. Look at the aggregate limit, do they have a front
Fenhua Liuing services or
Fenhua Liunot? Do they have insurance coverages? So all those organizations charge, all those information we need to look at closely to make sure they set up correctly. So my experience is that if something won't be licensed, it won't be successful the long term anyway. So we will collaborate to tell them what they need or anything they need to send us more information or add
Fenhua Liumore capital
Fenhua Liubased on the law requirement. So basically, we make sure all the captive are licensed here. They have a good structure, good corporate governance, and good survey provider to support them for the long term success. That makes
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
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