Article

Client Overview

A dynamic mid-market plumbing services contractor headquartered in South Florida operates across multiple service regions with a robust field operations structure. With approximately 250+ active field personnel and support staff, the company executes residential and commercial plumbing projects ranging from routine maintenance to large-scale commercial installations.

Captive Insurance Solution Provided

Policy Structure: C.I. structured and placed a dual-policy program consisting of:

• General Liability Primary $2M per occurrence / $4M per location / $5M aggregate with $10K SIR, covering bodily injury, property damage, and contractual liability exposures inherent to plumbing operations
• Commercial Auto Liability & Physical Damage: $1M Combined Single Limit with $500K auto liability deductible and $2,500 physical damage deductible, covering light and heavy-duty service vehicles across multiple states

Captive Retention: The captive retained the first $500k of risk on General Liability for any single occurrence subject to a basket aggregate across all lines enabling maximum premium retention and underwriting profit participation across the combined $1.819M GWP.

Carrier Paper: Policies issued on A- AM Best rated surplus lines and admitted carriers, ensuring lender acceptance and regulatory compliance across all operating jurisdictions.

Premium Flow: Approximately 50% in net premium share flows directly to the captive insurance company annually (after reinsurance fees, fronting carrier charges, operating costs, and broker commissions), representing approximately 50% of total GWP retained by the captive—with significant upside in profitable underwriting years.

Key Features and Strategic Benefits

1. Multi-Line Risk Consolidation & Underwriting Control

The dual-line program consolidates this clients primary commercial liability exposures into a single captive vehicle, enhancing underwriting accuracy and claims management discipline across both GL and Auto. Unlike traditional commercial market placement, where GL and Auto are often underwritten separately by different carriers with conflicting claim philosophies, the captive structure unifies claims management and defense strategy under one entity.

The captive's direct involvement in claims adjudication—via EmpoweredRE and third-party claims administrator allows the insured to select defense counsel, manage litigation strategy, and implement loss mitigation tactics that reflect the company's specific operational risk profile. This is particularly valuable for plumbing contractors where slip-and-fall claims, water damage liability, and vehicular accident claims require coordinated risk management.

2. Payroll-Driven Exposure Management

With total payroll exposure across three distinct service classifications, the insured benefits from actuarial precision in premium calculation. The captive structure allows for annual exposure audits and premium adjustments tied directly to payroll growth, eliminating the premium dislocation that occurs in traditional commercial markets where underwriting decisions lag actual exposure changes by 6–12 months.

For growing plumbing contractors expanding field headcount or entering new service regions, the captive provides immediate rerate flexibility without triggering commercial market underwriting delays or coverage reductions.

3. Reinsurance Attachment & Basket Aggregate Protection

GL Excess of Loss: $1.5M XS $500K (attaching at $510K)—protects the captive against catastrophic GL losses exceeding the $500K self-insured retention. Sexual Assault & Molestation coverage (100% captive-retained with $25K SIR sublimit) remains fully within captive's retention and does not participate in reinsurance, preserving premium on a predictable, high-margin sublimit.

Basket Aggregate: across both lines of business—provides aggregate stop-loss protection limiting total captive claims exposure across GL and Auto to approximately 2.4x the net premium retention. This creates a quantifiable maximum loss scenario for business planning and surplus management purposes.

The reinsurance structure is notably efficient: the captive retains the first $500K of each GL occurrence (where frequency is highest and claims are most controllable) while reinsuring severity (the $500K–$1.5M layer where individual claims are rare but catastrophic). The basket aggregate operates as a financial control valve—if the captive experiences adverse loss emergence across both lines in a single year, aggregate reinsurance steps in preventing capital impairment from tail-end risk.

4. Cash Flow and Dividend Opportunity

The net premium retention of over 50% annually flows directly into the captive's operating account and surplus. After setting loss reserves, the captive can accumulate underwriting profit, investment income, and reinstatement premiums. For a well-underwritten plumbing contractor with favorable claims experience, underwriting profit can be significant, decreasing total cost of risk.

Beyond underwriting profit, investment income on surplus can generate additional returns—particularly meaningful as the captive's surplus base compounds over 3–5 years.

Shareholder distributions (dividends of surplus) are available 90–120 days after each policy anniversary. The insured retains complete discretion over distribution timing and amount(subject to regulatory approval), enabling tax-efficient deployment of captive capital to fund equipment purchases, pay down debt, or reinvest in growth initiatives.

5. Claims Management Independence & Loss Mitigation

Unlike traditional insurance carriers who settle claims based on algorithmic reserve adequacy and national LDF assumptions, the captive—as 100% reinsurer of both policies—can implement claim-specific loss mitigation strategies:

• Defense counsel selection: Captive appoints independent defense counsel (separate from carrier panel) on all GL litigation, enabling negotiated early settlement or aggressive defense based on loss-specific facts
• Vehicular claim investigation: Auto claims adjudicated via third-party administrator with direct captive authority to implement salvage recovery, subrogation, and rental control programs
• Deductible management: $10K GL SIR and $500K Auto deductible empower the captive to aggressively investigate sub-SIR claims and challenge fraudulent auto repair estimates—creating additional margin on frequency losses

For contractors in this sector, this translates to rapid closure of minor slip-and-fall claims where liability is defensible (via local counsel negotiation), earlier settlement of vehicular claims with subrogation recovery, and systematic reduction of repair cost inflation.

6. Regulatory Compliance & Lender Acceptance

Both surplus lines, non-admitted, and admitted policies satisfy Florida contractual requirements and multi-state compliance obligations:

• GL: A- AM Best rated, IX ensures single-asset lender acceptance and maintains compliance on contractual indemnity requirements
• Auto: Admitted insurer status satisfies state DMV filing requirements across all operating jurisdictions
• Fronting carrier structure: Eliminates regulatory burden on nascent captive (no captive filing requirements until year 2–3 of operation, depending on jurisdiction)

Certificate-of-insurance issuance remains via fronting carriers, ensuring seamless third-party requirements (subcontractors, general contractors, property owners) without disclosing captive structure to downstream business partners.

7. Long-Term Strategic Positioning

Expansion to additional lines: As the captive accumulates surplus and claims experience data matures, C.I. can place additional coverages—Workers' Compensation (WC), Excess Umbrella, Equipment Breakdown, Cyber—on the same captive. Multi-line consolidation improves reinsurance economies and further reduces total cost of risk.

Market volatility buffer: The captive structure insulates the company from commercial market hardening cycles. Rather than absorbing commercial GL rate increases (common during market downturns), the captive's data will become actuarially credible, allowing for the insureds rating to based off of their experience vs the market surrounding them.

ESOP/equity structure optionality: As the captive matures, surplus accumulation enables strategic use of captive capital for business acquisitions, employee stock ownership plans (ESOPs), or owner liquidity events. The captive becomes a tax-efficient wealth-creation vehicle distinct from operational business performance.

Program Summary Table

Feature	Details
GL Policy Limit	$2M per occurrence / $4M per location / $5M aggregate
Auto Policy Limit	$1M Combined Single Limit
GL Deductible (SIR)	$10,000 per occurrence
Auto Liability Deductible	$500,000 per occurrence
Captive Retention	100% (subject to reinsurance attachments)
Total Annual GWP	$1,819,000 ($1,069K GL + $750K Auto)
Net Premium to Captive	>50% of GWP
Carrier Paper (GL)	A- AM Best, IX, Surplus Lines
Carrier Paper (Auto)	A- AM Best, IX, Admitted
GL XS Reinsurance	$1.5M XS $500K (attaching @ $510K)
Basket Aggregate	$4,368,430 (stop-loss protection)
Key Benefits	Underwriting profit retention, claims control, cash flow flexibility, market volatility protection, expansion optionality
Regulatory Compliance	Achieved via fronting carriers; multi-state lender acceptance
Strategic Impact	~50% premium retention, significant underwriting profit potential, long-term cost-of-risk reduction, captive capital deployment optionality

Underwriting Rationale & Risk Selection

Favorable Loss Profile: This insureds operation demonstrates:

• GL: High-frequency, low-severity claims (water damage, minor slip-and-fall) with strong sub-$50K closure profile; limited catastrophic GL exposure given service-based (vs. manufacturing) operations
• Auto: Fleet size and payroll base suggest 100–150 active vehicles; plumbing service auto claims typically favorable with strong subrogation recovery on collision claims

Exposure Stability: Payroll-based rating eliminates renewal uncertainty; multi-year payroll track record demonstrates stable, organic growth trajectory suitable for captive underwriting discipline.

Loss Control Opportunity: Captive structure incentivizes the insured to implement comprehensive loss mitigation—driver training, vehicle maintenance protocols, worker safety briefings, customer screening on job sites—as all underwriting profit flows directly to captive shareholders.

Fronting Carrier Alignment: Both carriers partnership with C.I. ensures streamlined claims adjudication and reinsurance cession, with no carrier incentive misalignment that plagues traditional commercial placements.

By implementing a captive insurance program via Captives Insure, this mid-market plumbing contractor successfully consolidated its multi-line commercial liability and auto exposures into a unified vehicle that delivers superior claims control, underwriting profit retention, and strategic optionality for future expansion. The program not only meets lender and regulatory requirements but positions the company to maximize underwriting profit, accumulate investment-grade surplus, and insulate operations from commercial market volatility—all while maintaining operational flexibility and growth-stage expansion capability as the business scales.

Contact: info@captives.insure