History, Mission & Overview

Captive Resources, LLC in conjunction with construction industry focused insurance brokers and other professional insurance and financial organizations, established a member owned group captive aimed at the needs of commercial general contractors. The objective of General Contractors is to provide members long term control of their insurance destiny, the return of underwriting profit and retention of investment income. General Contractors started writing business on August 1, 2007 for Auto Liability, Auto Physical Damage, General Liability and Workers Compensation coverage. Subsequent annual policy terms will run from September 1 to September 1. The following information provides an overview of the captive structure both organizationally and financially.

The mission of General Contractors is to provide the highest quality of insurance protection and services for its shareholders. By bonding together to create true sharing of risk, the shareholders can control their insurance costs and avoid the volatility of the general insurance industry. Additional benefits are created through the increased assurance of coverage, the stabilization of premiums, the improved management of risk through effective loss control and overall information sharing.

The company, through the active participation of its shareholders, will endeavor to provide the long-term security of a well-managed offshore insurance company. To meet this goal, only those providers of services that can meet the highest standards of excellence will be associated with the company.


Structure and Shareholder Involvement

General Contractors is a reinsurance company domiciled in the Cayman Islands. Cayman is the world's second largest captive domicile (behind Bermuda). Cayman provides a flexible regulatory environment and a strong financial support network (banks, accountants, captive managers, etc.). In addition, Cayman is a British Crown Colony with a stable political structure.

Each shareholder, regardless of premium size, has one vote. Each shareholder will appoint a representative to the Board of Directors. A simple majority by the Board of Directors will govern. General Contractors will endeavor to follow a four-year accounting cycle. Each year will stand alone and will not be reviewed for closing until the end of the third year after the policy year-end or as determined by the Board of Directors.

General Contractors will reinsure Workers' Compensation, General Liability, Auto Liability and Auto Physical Damage insurance policies issued by an "A" rated domestic policy issuing company. Reinsurance will protect the captive for both specific excess and aggregate losses above designated levels. The participating members will own the captive. Each captive member, in a combination of cash and letter of credit will provide initial capitalization as they join the program.

Some additional specifics include:

• General Contractors will reinsure the fronting company up to the captive's proposed specific retention of $300,000 for every loss, subject to an annual aggregate stop loss.
  
  
• As a member-owned group captive, each member will be responsible for a significant portion of its own loss activity.
  
  
• Each member's loss funds will be divided into an "A" fund and "B" fund. The "A" fund will pay for losses from $0 to $100,000 and the "B" fund for losses from $100,001 to $300,000.
  
  
• Each member will be subject to assessment for its losses which exceed its initial "A" fund up to an additional "1.5A" fund amount. Therefore each member must provide a proportionate amount of collateral to the captive as a condition of membership to ensure that any such assessment can be properly funded.
  
  
• The captive's total losses within the retention will be subject to a stop loss equal to 2.5 times the total "A" fund plus the total "B" fund for all members.
  
  
• Letter of Credit (LOC) requirements will be equal to one times the "A Fund" for a three year period, so the ongoing funding after three years is a rolling three year average of the "A Fund".
  
  
• Minimum Premium of $175,000.
  
  
• Lines of Coverage: Auto Liability, Auto Physical Damage, General Liability, Workers Compensation.
  
  
• Construction Focused Insurance Brokers - The insurance brokers will provide day to day insurance broking services including binding coverage, policy review, billing, certificates of insurance, coverage review and contract review.
  
  
• Gallagher Bassett - Loss Control expertise will be utilized to assist in developing standards and goals for each member's loss control program. The loss control providers will work with each member to assist them in achieving these goals, as well as report back to the Board, through annual assessment reports regarding the loss control efforts of each member.

Service Providers and Functions

In addition to the overall management of the Board of Directors, professional companies will be hired to handle the day to day running of the company.

These companies and their functions follow:

• Captive Resources, LLC (Captive Consultant) - The consultant, as an independent contractor, has the ultimate responsibility to the Board of Directors to see that the service providers carry out all of the Board's decisions. The Consultant will be involved as a nonvoting member in all Board of Directors and Committee meetings and assists the Board in the planning of these meetings.
  
  
• Kensington Management Group, Ltd. (Captive Manager) - Because General Contractors is domiciled in the Cayman Islands, all official books and records of the captive must be maintained there. The Captive Manager will keep the accounting records of the company and prepare interim financial statements, issue share certificates, serve as the Assistant Secretary of the Board, and maintain the corporate and statutory records including the minutes.
  
  
• PricewaterhouseCoopers (Auditor) - The auditor will complete the annual audit of the captive and issue the audited statements.
  
  
• Pinnacle Actuarial Resources, Inc. (Actuary) - The actuarial firm will develop the loss projections that the premium for each member is based on. In addition, it provides loss development and "Incurred But Not Reported" studies for purposes of the audited financial statements.
  
  
• AIG (Policy Issuing Carrier) - The policy issuing carrier is a licensed and admitted "A" rated insurance company which will issue policies for the program and addresses of all of the legal requirements of providing insurance for the shareholders. The policy-issuing carrier also provides the aggregate reinsurance for the program.
  
  
• AIG (Reinsurer) - The reinsurer will provide coverage for losses in excess of $300,000, protecting the captive against the impact of a single large claim. The reinsurer will also provide "basket and clash" coverage.
  
  
• Gallagher Bassett (Claims Administrator) - The claims administrator (TPA) will handle the settlement of the claims under the policies. Specific claims handling instructions will be prepared in cooperation with Captive Resources and implemented by the TPA. Captive Resources has assigned a claims services manager from its staff to work with General Contractors captive members to facilitate compliance with those instructions, coordinate claims review meetings, and follow targeted claims.

Premium Development

General Contractors will develop an experience rated formula to be used in calculating each member's annual premium. It will be primarily based on a prospective member's loss history.

The following is a brief outline:

• The intent of the formula is that each prospective member will pay a premium to fund for its ultimate losses, but it allows for risk sharing and risk shifting amongst the entire membership for shock losses.
  
  
• To develop a prospective member premium, each prospective member's previous five-year loss history is collected and the data is then trended and developed by General Contractors's outside actuarial firm. The Actuary then produces what it believes a prospective member's predictable losses will be plus what should be reserved for shock losses (losses above $100,000).This becomes the prospective member's loss fund.
   
  
• Next, the operating costs of the program such as excess reinsurance, fronting costs, claims service, loss control charge, etc. will be calculated for each prospective member.
  
  
• Finally, the contributions to the loss fund and operating costs will be added together to produce a member's annual premium.

In addition to premium charges, a prospective member can be assessed up to a predetermined amount if its expected losses exceed its contribution for the year.

Summary

General Contractors was fully operational effective August 1, 2007. Through active participation of its shareholders, it will endeavor to provide the long-term security of a well-managed insurance company. Through General Contractors, shareholders will be empowered to take control of their insurance destiny.

» Contact Mike McStocker for more information.