Article

Client Overview

This case illustrates how sustained loss performance and growing actuarial credibility within a captive can translate into meaningful long‑term savings. As the insured consistently outperforms the broader market, they not only retain substantial underwriting profit but also secure significant rate reductions as the captive matures and their results compound.

Captive Insurance Solution Provided

Policy Structure: C.I. structured and placed a primary $10 million per occurrence property policy covering all-risk perils including wind, hail, and named storm exposure across the coastal portfolio.

Captive Retention: The captive retained 80%+ of the premium, allowing for substantial participation in underwriting profit while maintaining fronting carrier capacity and regulatory compliance.

Carrier Paper: The policy was issued on A+ AM Best, XV rated admitted paper in primary states, ensuring lender acceptance and meeting all loan covenant requirements.

Key Features and Strategic Benefits

1. Rate Reduction and Market Arbitrage

The captive structure delivered a rate decrease of more than 20% from expiring, driven by eliminating redundant carrier profit loads, direct access to reinsurance capacity, and recognition of superior loss history compared to industry averages

2. Enhanced Control and Customization

The captive reinsures the fronting carrier, allowing the company to participate directly in claims management and implement tailored loss mitigation strategies including pre-CAT event property hardening, vendor selection for emergency repairs, and business interruption protocols specific to tenant lease obligations.

Captive governance enables real-time adjustments to coverage terms, sublimits, and property schedules as acquisitions close or dispositions occur, eliminating traditional market lag times and ensuring continuous alignment between insurance and portfolio composition.

3. Financial Impact and Underwriting Profit

Captive retention of 80%+ annually positions the captive to capture 100% of underwriting profit on loss-free years, directly reducing net total cost of risk and improving NOI across properties—critical for maximizing portfolio valuation multiples and debt service coverage ratios.

Surplus generated in the captive through profitable underwriting years can be invested in diversified portfolios, providing additional income streams and supporting long-term capital accumulation to self-insure higher retention layers or absorb frequency losses without commercial market impact.

4. Lender and Regulatory Compliance

Policies are issued on AM Best A+ rated paper with Financial Size Category exceeding lender requirements, ensuring compliance with all loan covenants, CMBS servicer guidelines, and property management partner insurance mandates without exception or waiver requests.

The fronting carrier structure ensures regulatory compliance across all jurisdictions, provides Named Insured / Additional Insured / Lender Loss Payee endorsements as required, and allows for seamless certificate issuance to meet third-party contractual obligations for tenants and vendors.

5. CAT Risk Management and Reinsurance Access

This captive structure provides the insured with direct access to catastrophe reinsurance markets, enabling tailored attachment points and coverage terms that align with actual portfolio exposure rather than pre-packaged commercial market solutions that force acceptance of coverage gaps or inadequate limits.

The captive's retention creates strong alignment between the insured's risk management incentives and underwriting discipline, encouraging proactive loss prevention including roof upgrades, impact-resistant glazing, drainage improvements, and pre-storm mitigation protocols across coastal assets.

6. Long-Term Strategic Advantages

As the captive accumulates surplus from profitable underwriting years the company can increase retention levels, expand coverage to additional lines such as inland marine or builders risk for renovation projects, or distribute dividends back to ownership to enhance portfolio returns.

The captive structure provides a hedge against continued property insurance market volatility—particularly critical for coastal real estate portfolios, which have experienced severe capacity contraction and rate escalation in traditional markets—reducing exposure to sudden renewals surprises and enabling multi-year strategic planning with predictable cost structures.

Feature	Details
Policy Limit	$10 million per occurrence
Captive Premium Retention	+80%
Carrier Paper	A+ AM Best, XV (admitted)
Rate Change vs. Expiring	+20% (rate decrease)
Historical Loss Ratio	<10%
Coastal Exposure	Significant (FL, GA, TX Gulf)
Lender Acceptance	Yes, with compliant deductible structure
Key Benefits	Rate reduction, underwriting profit retention, claims control, surplus growth
Regulatory Compliance	Achieved via fronting carrier and AM Best rated paper
Strategic Impact	Lower total cost of risk, CAT exposure management, portfolio valuation support

By partnering with Captives Insure, this real estate portfolio company successfully implemented a primary property captive solution that delivers a significant rate reduction, retains 80%+ of premium, and provides superior control and transparency compared to traditional commercial insurance. The program not only meets all lender and regulatory requirements but also positions the company to maximize underwriting profit on excellent historical loss experience, build investable surplus, and insulate the portfolio from ongoing coastal property insurance market volatility while maintaining comprehensive coverage across significant coastal exposure concentrations.

Contact: info@captives.insure