Captive Performance Metrics
| Metric | Definition | Target |
|---|---|---|
| Loss ratio | Claims paid / premiums collected | <70% for surplus generation |
| Combined ratio | (Claims + expenses) / premiums | <100% for profitability |
| Surplus growth | Annual increase in captive surplus | >10% annually |
| Return on equity | Net income / equity | >10% annually |
| Dividend yield | Dividends paid / equity contributed | >5% annually |
Annual Performance Review
Conduct an annual captive performance review that compares: (1) captive loss ratio vs. commercial stop-loss loss ratio; (2) captive surplus growth vs. commercial stop-loss premium savings; and (3) captive total cost (premiums + management fees + capital cost) vs. commercial stop-loss total cost. This comparison determines whether the captive is delivering value relative to the commercial alternative.
Exit Strategy
Pro Tip
Plan your captive exit strategy before you need it. Captive exit typically requires: (1) running off existing claims; (2) distributing remaining surplus; (3) filing dissolution documents with the domicile regulator; and (4) transitioning to commercial stop-loss. The exit process typically takes 12–24 months. Having a clear exit strategy reduces the risk of being trapped in an underperforming captive.