Group Captive Financial Mechanics
- 1Equity contribution: Each member contributes capital (typically $50,000–$200,000) to join the captive
- 2Premium payment: Each member pays stop-loss premiums into the captive based on their risk profile
- 3Claims payment: The captive pays stop-loss claims for all members
- 4Surplus accumulation: Favorable claims experience builds surplus in the captive
- 5Dividend distribution: Surplus is distributed to members as dividends (typically annually)
- 6Assessment: Unfavorable claims experience may require additional member contributions
Risk Sharing
Group captives share risk among members — a bad year for one member affects all members' surplus. This risk sharing is the fundamental trade-off of group captive membership: in exchange for the potential to earn dividends in good years, members accept the risk of assessment in bad years. Members with consistently favorable claims experience benefit most from group captive membership.
Member Selection
IQ Insight
Group captive member selection is critical — the captive is only as good as its members. Well-run group captives carefully underwrite prospective members, excluding those with poor claims history or high-risk industries. As a prospective member, you want to join a captive with rigorous member selection — because you are sharing risk with those members.