What does a regulator look for before approving a captive?
Structure first: who owns the risk, and is the transfer real
Fenhua Liu starts with structure rather than paperwork. The first questions are who owns the risk, who is insuring it, how strong the parent is, and whether the arrangement actually meets risk distribution and risk transfer requirements. From there the department reads the business plan and feasibility study, the corporate governance, the service providers chosen, and whether capital is adequate for the liabilities to be written, including aggregate limits and any fronting or reinsurance behind them.
The ordering of her answer is the substance of it. She does not begin with documents, she begins with the shape of the arrangement: who owns the risk and who insures it. That is the question underneath every captive, and an application that cannot answer it cleanly has a structural problem no amount of filing will fix.
Risk distribution and risk transfer come next in the same breath. Those are the tests that separate insurance from a funded reserve, and Liu treats them as threshold questions rather than technicalities.
Key takeaways
Liu reads structure before paperwork: who owns the risk, who insures it, the parent's strength, and whether risk distribution and transfer requirements are genuinely met.
Business plan, feasibility study, corporate governance and the chosen service providers are read together as evidence the captive will operate like a real insurer.
Capital is assessed against the liabilities and aggregate limits proposed, with fronting and reinsurance read as part of the same solvency picture.
Then the department reads the plan. The business plan and the feasibility study are what turn a structure into a programme, and Liu pairs them with corporate governance, which she returns to more than once. Her framing is that a licensed captive has to operate like a real insurance company to meet its owner's need, not simply hold a licence.
The service providers are part of the same judgement. Who the applicant has chosen tells the department something about how the captive will be run.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“When we approve the captive, we look at a big structure first, who owns the risk?”
This answer begins at 4:03 of the full conversation. Watch or listen to the whole thing.
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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