The University of California (UC) has formed a protected cell company as part of its growth plan to cover employee/employer paid life insurance.
Eureka, UC’s fourth captive to date, will be a non-risk bearing entity, which will then sponsor additional incorporated cell captives (ICCs). Eureka will, as with all UC’s captives, be domiciled in Washington DC.
UC’s first ICC, Eureka One, will house the life insurance risk fronted and administered by Prudential Life Insurance Company.
Eureka One is expected to be authorised at UC’s October board meeting and will be licensed in November at the latest.
The California State University system, a sister system to UC, has expressed interest in following UC’s lead in more efficiently financing some of its risks through a captive.
A second ICC will be sponsored by UC but owned and controlled by the California State University system.
Additional ICCs can be added in the future as needed.
Courtney Claflin, executive director of captive programmes at the UC Office of the President, explained the motivation behind launching the new captive structure.
He said: “When I got to UC Office of the President a little over three years ago I laid out a plan to my board to grow our $25 million premium captive.”
“As part of that growth plan, I said that self-insuring employee/employer paid life insurance was a captive arrangement that may be an opportunity depending on the outcome of a deep analysis into the existing plan.”
“With Willis Towers Watson lead consultant (for this type of arrangement) Kathleen Waslov, we did a feasibility study on the existing life insurance plan that is approximately $60 million annually in premium.”
“Our analysis showed significant savings opportunity for us to self-insure this risk.”
According to Claflin, to ensure UC remained Internal Revenue Service compliant, another captive needed to be built to house this additional risk.
He commented: “Our first captive, Fiat Lux, is our largest and is a not for profit 501c3 tax-exempt captive and the IRS will only allow you so much 3rd party business in this captive.”
“So, another captive would have to be built to house this (life insurance) 3rd party risk.
“When considering what type of structure to build I presented to the board the concept of putting up a cell captive structure so we could prop up as many new, additional captives as we would need to support this (life) initiative as well as numerous 3rd party initiatives we have in our pipeline.”
