Article

Client Overview

This mid-market residential homebuilder operates a large-scale construction portfolio across multiple states. The company maintains a significant project inventory of nearly $1 billion in total project value across active construction sites. With loss free claims experience, this insured has continued to realize significant underwriting profit over their tenure within the Captives.Insure turn-key captive program. 

Captive Insurance Solution Provided

Policy Structure: C.I. structured and placed a master builder's risk program consisting of:

• Builder's Risk Physical Damage: Primary $6M per occurrence / $6M annual aggregate, covering direct physical loss to construction property, materials, and improvements on all active construction projects with comprehensive coverage extensions
• Delay in Completion Coverage: $250K per occurrence with 3-day waiting period for soft costs (labor, financing, management fees) to maintain schedule integrity during construction delays
• Coverage Extensions: Comprehensive suite including $1M design professional fees, $1M construction documentation & records, debris removal (25% of loss), contractor expenses (20% of loss), and claim preparation expense ($100K)

Captive Retention: The captive retained 100% of risk on the builder's risk program, enabling maximum premium retention and underwriting profit participation on the $1M GWP policy.

Carrier Paper: Policy issued on admitted paper with A+ XV AM Best ratings and substantial global capacity, ensuring lender acceptance across all operating jurisdictions and multi-state regulatory compliance.

Premium Flow: Approximately 75% in premium retained by the captive insurance company annually (after fronting fees, broker commissions, program fees, and captive operating costs).

Key Features and Strategic Benefits

1. Unified Master Builder's Risk Platform

The master builder's risk structure consolidates all residential construction projects into a single underwriting entity, providing unified claims management, consistent loss control standards, and centralized documentation across the company's entire project portfolio. Unlike traditional insurance markets where individual projects or geographic regions are underwritten separately (creating coverage gaps, inconsistent deductibles, and fragmented claims authority), the captive delivers integrated risk management across the entire construction operation.

The captive's direct involvement in claims adjudication via the carrier and the captive's claims administrator enables the homebuilder to:

• Select and direct defense counsel on property damage claims
• Implement project-specific loss prevention protocols
• Coordinate between project teams and claims examiners
• Reduce claims adjustment delays through direct oversight authority
• Negotiate settlements aligned with project schedules and lender requirements

For a homebuilder with nearly $1bn in active construction value, this translates to faster claims resolution, lower adjustment costs, and protection of project schedules from insurance delays.

2. Project Value Escalation & Dynamic Limits

The builder's risk program includes an escalation clause allowing automatic adjustment of policy limits to reflect changes in total project value original limit. As project scope increases, material costs rise, or additional units are added to the portfolio, the captive's exposure automatically expands with pro-rata premium adjustment.

This dynamic rating eliminates the common situation in traditional markets where a homebuilder's insurance lags behind actual construction costs by 6–12 months, creating either underinsurance (if project value increases) or overpayment (if values decrease). The captive structure allows quarterly reviews of total project value with immediate rating adjustment, optimizing both coverage adequacy and premium efficiency.

3. Comprehensive Coverage Extensions & Soft Cost Protection

The program includes robust coverage extensions critical to residential construction operations:

• Construction Documentation & Records ($1M sublimit): Protects the cost to reconstruct specifications, architectural plans, and building records if project documentation is lost or damaged during construction
• Design Professional Fees ($1M sublimit): Covers costs to reestablish design specifications, engineering standards, and compliance documentation if damaged
• Contractor Expenses (20% of loss, capped at $1M): Reimburses construction management overhead, supervision costs, and general conditions incurred during repair/reconstruction of damaged property
• Debris Removal (25% of loss, capped at $1M): Covers full demolition and site clearance if construction is damaged and must be rebuilt
• Soft Costs - Delay in Completion ($250K limit, 3-day waiting period): Protects against financing costs, carrying charges, and labor costs during construction delays caused by covered perils

For homebuilders with multiple lender relationships, these extensions are critical: many construction lenders require proof of professional fee protection and documentation recovery capability before advancing additional funds post-loss. The captive structure ensures these coverage extensions are maintained at full limit without commercial market restrictions.

4. Catastrophe Limit Efficiency & CAT Exposure Management

The program provides full $6M limits for all catastrophic perils (earthquake, flood, named storm, water damage), with no sublimit.

For a homebuilder operating across multiple states with Florida, Texas, and coastal exposure concentration, this is exceptionally valuable:

• Named Storm: $6M per occurrence / Annual Aggregate
• Flood: $6M per occurrence / Annual Aggregate
• Earthquake: $6M per occurrence / Annual Aggregate
• Water Damage: $6M per occurrence / Annual Aggregate

The $25K deductible applies uniformly across all perils, providing predictable cost control without the commercial market's escalating CAT deductibles ($50K–$250K for named storm/flood).

5. Lender Compliance & Certificate of Insurance Flexibility

The captive program satisfies requirements of 30+ institutional lenders, equity partners, and construction financiers with:

• Admitted carrier: Ensures regulatory filings in all 50 states and satisfies lender requirements for carrier financial strength ratings
• Master certificate format: Single certificate covers all active projects, simplifying lender documentation and reducing issuance delays when new projects are added
• Construction project tracking: Ability to add/remove individual projects mid-term without policy amendments or delay
• ISAOA/ATIMA endorsements: All lenders and equity partners listed as additional insureds and loss payees with automatic protection across the entire portfolio

Unlike traditional programs where adding a new project requires new declarations, endorsements, and lender notifications (delaying project funding by 2–4 weeks), the master captive structure enables immediate coverage expansion with lender notification only.

6. Claims Control & Loss Mitigation

The captive's direct claims authority (via fronting carrier) enables:

• Project-specific loss prevention: Implementation of site-specific construction protocols, material storage standards, weather protection measures, and labor safety procedures tailored to each project's risk profile
• Subrogation & recovery management: Authority to pursue recovery against subcontractors, suppliers, and third parties responsible for property damage, with 100% recovery retained by captive
• Schedule impact mitigation: Captive can authorize expedited repairs, temporary coverage, and schedule acceleration measures to minimize delay in completion exposure
• Deductible threshold management: $25K deductible encourages aggressive investigation of smaller losses, identifying systemic construction deficiencies and recurring loss patterns across the portfolio

For a homebuilder with thousands of units in construction annually, systematic loss prevention driven by captive underwriting profit incentives translates to measurable reduction in frequency and severity of construction-period property damage.

7. Long-Term Strategic Positioning & Expansion Optionality

Expansion to additional coverages: As the captive accumulates surplus and construction operation matures, C.I. can place additional lines—General Liability (for completed operations), Excess Umbrella, Inland Marine (for equipment/materials)—on the same captive, further consolidating cost of risk and improving reinsurance efficiency.

Market volatility insulation: Builder's risk markets experience periodic hardening during active hurricane seasons or following catastrophic loss years. The captive structure insulates the homebuilder from commercial market rate increases; rather than absorbing 20–50% premium escalations, the captive's premium remains stable with any underwriting volatility captured within captive profit margins.

Surplus accumulation & strategic optionality: As the captive accumulates underwriting profit and investment income, surplus can be:

• Reinvested in safety/risk mitigation infrastructure at project sites
• Deployed for acquisition financing of additional homebuilding platforms
• Distributed to ownership as tax-efficient capital return
• Retained to support expansion into adjacent insurance coverages

Program Summary Table

Feature	Details
Builder's Risk Policy Limit	$6M per occurrence / $6M annual aggregate
Covered Project Value	~$1bn
Primary Deductible	$25,000 per occurrence (all perils)
Delay in Completion	$250K per occurrence, 3-day waiting period
Captive Retention	100% of risk
Total Annual GWP	$1,000,000
Net Premium to Captive	~75% GWP
Carrier Paper	A+ AM Best, Admitted
CAT Limits	$6M each for earthquake, flood, named storm, water damage
Key Benefits	Unified portfolio management, dynamic limit adjustment, comprehensive soft cost protection, centralized claims authority, subrogation control
Regulatory Compliance	Multi-state lender acceptance, admitted carrier status, 30+ lender support
Strategic Impact	~75% premium retention for reinvestment, market volatility buffer, expansion optionality

Underwriting Rationale & Risk Selection

Favorable Construction Operation Profile: The homebuilder demonstrates:

• Scale & sophistication:  Large portfolio value indicates mature, well-managed construction operations with institutional-level project management, quality control, and safety protocols
• Multi-state diversification: Geographic spread across multiple markets reduces concentration risk from single-region weather events or economic downturns
• Institutional lender relationships: 30+ construction lenders (major banks, credit unions, specialty lenders) indicate financial strength and creditworthiness; lenders only finance builders with strong loss control profiles
• Project documentation & specifications: Ability to provide detailed project breakdown, construction schedules, and scope documentation indicates sophisticated risk management infrastructure

Loss Frequency Expectation: This client is currently loss free over the evaluation period. Residential construction typically generates 3–8 property loss claims annually across the portfolio—well within captive underwriting parameters. Most claims are sub-$100K (material damage, minor theft, construction defects) with strong subrogation recovery potential.

Underwriting Profit Opportunity: With a loss free claims experience and continued disciplined loss control, the captive realizes significant underwriting profit plus investment income on accumulated surplus.

By implementing a master builder's risk captive program via Captives Insure, this mid-market homebuilder successfully consolidated their project portfolio into a unified vehicle that delivers superior claims control, underwriting profit retention, dynamic limit adjustment, and comprehensive soft cost protection. The program not only meets lender and regulatory requirements across all operating states but positions the company to maximize underwriting profit, accumulate investment-grade surplus, insulate operations from commercial market volatility, and maintain operational flexibility as the construction portfolio scales.

Contact: info@captives.insure