What should you do before you form a captive?
Start from the risk, and go in with your eyes wide open
Mark Wiedeman starts by drawing the line around his own role: as regulators they typically are not in a position to make recommendations or policy suggestions for a company, and cannot tell an owner what to put in a business plan. Inside that limit his advice is to do the diligence and start from the risk. Figure out what is keeping you up at night, understand your risks, understand what you are wanting to do, and when you talk with your managers, auditors, actuaries and lawyers about how to structure a program, go into it with your eyes wide open. He adds that an owner unsure whether something fits within a statutory provision is always welcome to call the department. Michael Schulz makes the harder point: a lot of people will be pulling for one thing or pushing for another, and in the end the owner has to go with what feels right to them.
The disclaimer at the front is not throat clearing, it is the shape of the advice. Wiedeman says regulators are not in a position to make recommendations or policy suggestions, and cannot tell an owner what to put in their business plan.
That is why everything he offers afterwards is about the owner's own preparation rather than about structure. He is not allowed to design the program, so he tells you how to arrive able to design it yourself.
Key takeaways
Regulators cannot make recommendations or tell an owner what to put in a business plan, so the preparation is the owner's own.
Wiedeman says to start from the risk that keeps you up at night and go into adviser conversations with your eyes wide open.
Schulz says advisers will pull in different directions, and the prospective owner has to decide for themselves.
The preparation starts at the risk, not the entity. Figure out what is keeping you up at night, understand your risks, and understand what you are wanting to do.
This is the second time in the conversation he puts it that way, and it is the same test he applies from the other side of the desk when he says he can tell when a captive is being formed for the right reason.
From the conversation
Tennessee Department of Commerce and Insurance
Captive Insurance Section, State of Tennessee
“we can't tell them what to put in their business plan”
Transcript
Read the full transcript 7 turns
HostAny, words of wisdom or advice
Mark Wiedeman? So as regulators, we, typically aren't in a position to be able to like make recommendations or, policy suggestions for a company. You know, we can't tell them what to put in their business plan, but I, you know, if there are any advice that I would offer is, you know, as you're doing your diligence as a, as a potential captive owner, you know, you know, ask
Mark Wiedemanthe, ask the questions, you know, like, you know, like, I said earlier, figure out what's keeping you up at night, understand your risks, understand what you're wanting to do. When you talk with your, managers and your auditors and your actuaries and your, and your lawyers about how you want to structure your program, you know, go into it with your eyes wide open, you know, and then, and then from a regulatory standpoint, if you ever aren't sure about something, if it would fit
Mark Wiedemanwithin a statutory provision or have, what have you in Tennessee, you're always welcome to give us a call. If you happen to be in town, you're welcome to stop by. We're always happy to, host a visit and, answer any questions that you guys have as you're going through this process
Michael Schulz. Yeah. And as a potential captive owner, you're, you know, the
Michael Schulz, do your, just do your due diligence, really. I think when it comes down to it, I mean, not that a potential captive owner wouldn't, but there are going to be a lot of people who are pulling for one thing or pushing for another. And in the end, I mean, it's great to listen to your captive managers and your lawyers. but you got to go with what feels right to you as the purpose
Michael Schulz, as the perspective owner. And so that comes down to decision-making, you know, whether it be a domicile or attorneys and whatnot. So just follow your gut and, you know, by and large, the captive industry is a, from a regulatory standpoint, we all work together. So we are all very up on what each other is doing, but, I still think that we do it the best in Tennessee
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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