Agile Premium Finance talks to John Savage about the recent disruptions to the captive industry and the different types of financing options that are available
With all the recent changes and disruption in the banking industry, how have you been affected?
We believe that banking problems can create opportunities for innovation in the financial sector.
We have always strived to foster innovation and encourage the development and adoption of financing as a funding option for captives.
With our proposed innovative funding solutions, we can streamline the funding process, reduce opportunity costs, and enhance captive owner experiences. Our focus is to make financing more accessible and efficient.
How can you lessen the burden of rising interest rates?
Navigating the current interest rate landscape can pose challenges for firms seeking cost-effective borrowing options. However, our affiliation with a bank allows us to explore innovative solutions that help mitigate the impact of elevated borrowing costs.
As a result, our borrowing index tends to be lower compared to conventional captive lenders. Our primary focus is streamlining the financing process to minimise the time and effort required to secure funds.
What are the different types of financing options available in the captive space?
There are several types of funding options available for a captive owner. We provide an alternative funding source by customising financing options that include collateral financing, premium financing and alternative loan backs and the formation of Private Premium Finance Company.
How can these alternative financing options reduce dependency on traditional banks and make funding more accessible for businesses and individuals?
Our funding solutions are tailored specifically to the unique requirements of captive insurance programmes. Unlike traditional banks, we have a deep understanding of the intricate needs of captives. This expertise allows us to design and deliver targeted solutions that address captive-specific challenges.
While we recognise that captive owners may still require access to funds from traditional banks for other areas where they feel more at ease, rest assured, our solutions are designed to co-exist harmoniously with traditional banking relationships — ensuring that the captive owners’ borrowing capabilities remain intact in their preferred lenders.
What are the potential benefits of diversifying funding options for captive insurance companies?
Diversifying funding options for captive insurance companies offers significant advantages in adapting to market changes.
By accessing specialised lenders that cater to captive financing, captives can optimise their capital structure and funding strategies while preserving their borrowing capacity for other types of loans with traditional banks.
Moreover, diversified funding options unlock strategic growth opportunities for captive insurance companies. The availability of additional capital empowers captives to embark on expansion initiatives, enter new markets, or introduce innovative product offerings.
This strategic approach allows captives to strengthen their competitive position, maximise growth potential, and seize promising prospects in the evolving insurance landscape.
How does premium financing help with cash flow management in a captive insurance programme?
By opting for premium financing, the company can preserve its cash flow and maintain liquidity by making smaller regular payments over the policy period, instead of paying a large premium amount upfront. Companies can agree to customised financing terms according to the repayment period, frequency of instalments, and even structure the financing to align with their revenue cycles.
This flexibility helps to optimise cash flow and align it with the company’s operational requirements. By utilising premium financing, companies can redirect their available cash into other investment opportunities that may yield higher returns.
Instead of tying up their capital in a lump sum premium payment, they can invest in projects, acquisitions, or growth opportunities that can generate additional revenue or improve their financial position.
What are the key considerations when deciding whether financing is a viable option for a captive insurance programme?
These considerations should include; cost of financing, cash flow analysis, long-term financial strategy and risk management. Determine the cost of borrowing the funds needed for premium financing by assessing the interest rates, fees and other charges associated with the financing arrangement. Compare these costs with the benefits and cash flow advantages the financing provides.
Evaluate the company’s cash flow situation by understanding the timing of cash inflows and outflows, including revenue cycles, operational expenses and other financial obligations. Assess whether financing the insurance premiums aligns well with the company’s cash flow patterns and whether it will help improve liquidity and cash flow management.
Identify whether financing the captive insurance premiums aligns with the company’s broader financial objectives. Assess the impact of premium financing on the company’s financial stability, debt capacity and ability to pursue other investments or growth opportunities.
Evaluate the historical performance of the captive, claims experience and underwriting practices. A stable and well-managed insurance programme is more likely to be suitable for financing, as it provides confidence in the premium calculations and the long-term sustainability of the captive.
Ensure that the financing arrangement complies with applicable laws, regulations and accounting standards. Consider consulting legal and tax professionals with expertise in captive insurance and premium financing to ensure compliance and mitigate any potential risks.
Seek guidance from insurance professionals, captive insurance specialists, financial advisors and legal experts with experience in captive insurance programmes and premium financing.
These professionals can provide valuable insights, evaluate the specific circumstances of the company and offer tailored advice to make an informed decision.
Why would a company seek financing for their captive insurance programme?
While the captive owner may have the resources to fund the captive, doing so could necessitate liquidating working assets, potentially undermining their overall financial strategy.
Raising funds through private investors often involves demanding a significant fixed return on investment and acquiring an equity position in the captive. Opting for financing provides a viable solution to steer clear of such scenarios.
Ultimately, the decision to seek financing for a captive insurance programme depends on the company’s specific circumstances, risk profile and financial objectives.
It is advisable for companies to assess their captive’s financial needs and consult with captive experts, risk advisors, and financial professionals to determine the most appropriate financing approach for their unique situation. Captive owners can feel confident that there are creative funding and premium finance solutions at their disposal in today’s marketplace.
