Questions to Ask a Captive Manager Before Signing

A captive manager runs the day-to-day operations of your captive insurance company. That includes regulatory filings, board coordination, financial statements, reinsurance placement, and often claims oversight. The wrong manager can quietly cost you more than the traditional market you left. The right one converts premium into owned equity and keeps your lenders comfortable through every refinance. The questions below separate the two.

Claim: Global captive insurance market size reached approximately $67 billion in 2023. Source: Allied Market Research Date: 2024

Questions About Structure, Fees, and Actuarial Process

Start with the money and the math. A captive manager's fee schedule tells you how they make their living and where their incentives sit.

Ask for a written breakdown of every fee: setup, annual management, actuarial, audit, tax preparation, fronting, reinsurance brokerage, letter of credit fees, and any per-policy issuance charges. Then ask whether the manager or an affiliate earns commission on reinsurance placement. Undisclosed reinsurance markups are one of the most common ways members lose 5-10% of expected savings.

Ask how premiums are set. The answer you want: an independent actuary reviews your five-year loss history and prices each member's contribution based on their own exposure. If the manager sets premiums internally, you have a conflict. The manager's revenue often scales with premium volume, which pushes prices up rather than down.

Ask which domicile they recommend and why. Vermont, Bermuda, Cayman, and Tennessee each have different capital requirements, tax treatments, and regulatory temperaments. A good answer explains the trade-offs for your specific portfolio size and geography.

Claim: More than 6,000 captive insurance companies operate worldwide across major domiciles. Source: Captive Insurance Companies Association Date: 2024

Ask about capital requirements. How much do you post at inception, how much stays at risk each year, and what happens to that capital if you exit. Also ask what the collateral structure looks like: cash, letter of credit, or trust account, and who pays the annual LOC fees.

Finally, ask for the last three years of financial statements for captives they currently manage that resemble your profile. A manager who cannot produce anonymized examples of comparable programs probably has not run one.

Questions About Lender Compliance and Fronting Carriers

For real estate owners, lender compliance is where captive programs succeed or quietly fail. A captive that saves 30% on premium is worthless if your CMBS servicer rejects the policy at refinance.

Ask which fronting carriers the manager uses and what their AM Best ratings are. Fannie Mae and Freddie Mac generally require A- or better. CMBS loan documents often specify A or A- minimums. If the fronting carrier does not clear those bars, the captive cannot issue policies your lenders will accept.

Claim: Commercial property insurance rates rose 10.1% in Q1 2024, continuing a multi-year hard market. Source: Marsh Global Insurance Market Index Date: 2024

Ask how many real estate captives the manager has walked through Fannie Mae, Freddie Mac, HUD, and CMBS reviews. Ask for the names of lender insurance consultants who have approved their programs. The consultants matter. A handful of firms review captive structures for the agencies, and a manager who has worked with them before will get you through faster.

Ask what happens when a lender rejects the captive structure. Does the manager have a fallback: a supplemental admitted policy, a different fronting carrier, a modified retention. If the answer is "we have not had that happen," probe harder. Every experienced manager has hit a lender objection at some point.

Ask about evidence of insurance turnaround. Certificates, endorsements, and loss payee changes need to happen in days, not weeks, when you are closing an acquisition or refinancing a property. A slow manager creates deal risk.

Questions About Claims, Governance, and Exit

Claims handling is where members either see the value of the captive or start regretting the decision. Ask who handles claims: the fronting carrier, a third-party administrator selected by the manager, or an independent TPA you can choose. Ask who has settlement authority above your retention and whether the captive board can override the fronting carrier on contested claims.

Ask what happens in a large loss year. If losses exceed premium and surplus for your cell or the group, what is the assessment mechanism, what is the cap, and how quickly do you have to fund. This is the single most important governance question in a group captive.

Claim: Vermont, the largest US captive domicile, licensed 659 active captives at year-end 2023. Source: Vermont Department of Financial Regulation Date: 2024

Ask about board composition and voting rights. In a group captive, are you an owner with a board seat, a non-voting member, or a cell tenant. Voting rights determine whether you can push back on manager decisions, replace service providers, or approve dividend distributions.

Ask how dividends work. What triggers a distribution, who approves it, how is it allocated among members, and what is the historical distribution track record for their existing captives. A manager who cannot describe past dividend history is either new to the business or running programs that do not generate surplus.

Ask about exit terms. If you sell your portfolio or want to leave the captive, how long until you receive your capital back, are there runoff reserves held against future claim development, and what is the typical timeline. Well-run captives return capital within 12-36 months of exit, net of runoff reserves. Poorly written operating agreements can trap capital for five years or more.

Ask about conflicts of interest in the manager's other business lines. Do they own the fronting carrier, the TPA, or the reinsurance broker. Related-party transactions are not automatically bad, but they need disclosure and independent review.

Finally, ask for three current member references. Call them. Ask what surprised them, what they wish they had asked before signing, and whether they would join the same captive again.

Putting the Answers Together

No single question disqualifies a captive manager. Patterns do. If fee disclosures are vague, if premium setting is not independent, if lender approvals are theoretical rather than documented, or if exit terms lock capital for years, keep looking.

The captive manager you sign with will handle regulatory filings, coordinate reinsurance, oversee claims, and produce the financials your lenders and auditors rely on for the life of the program. That is a multi-year relationship with real switching costs. An extra week of diligence at the front end is inexpensive compared to unwinding a bad structure two years in.

If you own a real estate portfolio between $250M and $3B and want a straightforward walkthrough of how these questions apply to your specific situation, Book a Meeting with Real Property Captive. We will show you how our fee schedule, fronting relationships, and exit terms compare to what you are hearing elsewhere.