Forget what you may think the word captive means on the street. In the insurance business, more precisely the reinsurance business, a “captive” is a type of insurance pool that does not offer reinsurance services outside its group.

County Reinsurance Limited (CRL) is a captive insurance company, formed in 1997, to give county association pools the same kind of economies and savings in the re-insurance market that they have historically provided to their member counties in the insurance arena. CRL has lived up to its mission.

Even in the recent soft market and with the start-up costs, the CRL actuary indicates that the captive saved pools $500,000 in 1999. Total captive pool premiums were $6 million in 1999.

CRL presently covers workers’ compensation, property and casualty, law enforcement and public officials liability. Each member pool selects its self-insured retention (SIR) limit for losses. A self-insured retention is the amount of money per claim the county pool pays before their reinsurance kicks in. Each pool may have a different self-insurance retention level. CRL covers each pool for the amount above that self-insured retention up to $1 million.

CRL purchases reinsurance for the $1 million to $2 million layer of coverage. Individual pools may change their self-insurance retention level or purchase coverage above the $2 million layer on their own. This can assist each pool in staying competitive as the marketplace changes.

CRL is domiciled in Vermont. The state of Vermont regulates each captive and monitors its activities to assure adequate capital and surplus. CRL has capitalized itself at 40 percent.

Capitalization costs increase only if the member’s premium is increased from one year to the next. This contribution is listed as an asset on the member pools’ financial statements. For the member pool, the capitalization funds are reserved and invested similarly to the funds invested in their own pools.

CRL is made up of 10 pools from five states. A representative of each state sits on the board along with a resident from the state of Vermont. At the CRL annual meeting, a dividend can be declared by the board. Each member of CRL then shares in the profits of the captive that year.

Ron Aycock, vice-president of CRL and the executive director from North Carolina County Commissioners Association, is chairing a committee to create the opportunity for individually insured counties to use the captive to reinsure their county. The captive board has committed $1 million toward the effort. Since many larger counties are unable to participate in their own state pool, this opportunity would provide a significant benefit to self-insured counties.

Jim Jean, president of CRL, recently commented, “CRL has developed an excellent reputation in a short period. We have worked through the start-up pains that are so time consuming. It is an opportune time for other county pools to benefit from our endeavors.”

CRL recently hired full-time staff to assist in the operations of the company. The NACo Financial Services Center assists CRL with administration and marketing.

For more information contact: Donna Smith, director, Risk Services and Employee Benefits, NACo FSC, (505) 890-5700 or dsmith@naco.org

(Financial Services News was written by Donna Smith.)