US Captive


Five questions: unpacking your feasibility study


An examination of the challenges faced and those questions that need to be addressed in a captive feasibility study. A quick look at US captive growth figures for 2011 would reveal


that interest in captive formations has risen markedly in recent months. More and more US and international firms are considering setting up captive entities—with an emphasis on single-parent captives and the smaller 831b captive entities—whilst those with existing entities are looking again at ways to maximise the potential of their captive vehicles. Speaking with John Lochner, director of consulting services at Towers Watson, it is clear that “in the last year, and increasingly so in recent months, there has been a significant amount of interest in new captives and captive strategy work for existing captives, i.e. we have a captive, does it still makes sense for us, and if it does, can we be doing something bigger and better with our vehicle”, with firms spurred on by improving economic conditions in the US and a desire to “get a jump on the next hard market”. Either way, interest in captives has received something of a lift following the hang-over that came in the wake of the global economic downturn, with feasibility studies and their inherent demands gaining increasing interest among US corporate parents in 2011.


Two challenges... Feasibility studies are an integral part of the formation process,


providing invaluable insights into the scope, challenges and objectives of the captive within the context of the parent’s business plans, but are themselves not without their own specific challenges. Addressing those issues presented by drawing together the feasibility document, Lochner indicated that there were two major challenges to those taking on the study process. The first is in “assembling the right team of internal project members, the right team of external advisors and in ensuring you maximise and co-ordinate the disciplines of all parties”. In bringing to bear the expertise of a suitable pool of people, you not only get a “better end result”, Lochner said, but also secure the “necessary buy-in throughout the process” that will ensure that the captive entity envisaged succeeds.


In terms of company personnel, Lochner stated that you need people representing risk management, finance and legal, as well as a tax representative, and in the case of a captive relating to staff benefits,


US Captive . April 2011 19


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