How does a regulator decide whether a captive can pay a dividend?
The department expects money to come back out, and checks capital and liquidity first
Travis Wegkamp starts from a philosophy rather than a rule: a captive exists to serve a purpose, not to become a massive corporation, so recapturing surplus built from good underwriting results makes sense to him. Dividends need prior approval, and the review checks two things. The minimum capital has to stay in the captive, and the reserves have to stay liquid enough to pay claims if they come to fruition. He says the review is usually quick, and that a captive is not limited to one dividend a year.
It is unusual for a regulator to open a dividend answer with a view about what captives are for, and Wegkamp does. He says a captive exists to serve a purpose and not to become a massive multi billion dollar corporation, and he believes most regulators think similarly.
That framing decides the posture. If surplus accumulating forever is not the goal, then a captive that underwrote well and built surplus taking some of it back is the system working rather than something to resist.
Key takeaways
Wegkamp says a captive exists to serve a purpose rather than to accumulate indefinitely, so recapturing surplus through dividends is expected rather than resisted.
The review checks that minimum capital stays in the captive and that reserves stay liquid enough to pay claims that materialise.
Dividends require prior approval, the review is usually a few days, and a captive can take more than one in a year.
The checks are narrow and both about the captive's ability to pay. The first is that the minimum capital stays in the company after the dividend leaves. The second, which Wegkamp says is the closer look, is reserves and liquidity: whether the captive can still pay those reserves if the claims behind them actually materialise.
He sums the review up as liquidity, solvency and the regulatory minimum. Nothing in his answer suggests the department second guesses why the owner wants the money.
From the conversation
Travis Wegkamp
Director, Captive Insurance Division, Utah Insurance Department
“the captive exists to serve a purpose. It doesn't exist to become a massive multi-billion dollar corporation.”
Transcript
Read the full transcript 12 turns
HostHow does a regulator view the dividends back to a parent company? When are, and when are captive owners allowed to take dividends and kind of what frequency do you see those going out at? Yeah
Travis Wegkamp, you know, it's interesting. It depends kind of on your viewpoint and kind of your philosophy towards captives. I think most regulators are similar to maybe what my idea is, that, you know, the captive exists to serve a purpose. It doesn't exist to become a massive multi-billion dollar corporation. So, if, you're using that captive, you're putting those, premiums in there and you're having good underwriting. What
Travis Wegkamp's the word I'm looking for? Under
Travis Wegkampwriting profits or investment
Travis Wegkampincome. Yeah, I'm writing profits or, results. You're having good underwriting results there and you're building up that surplus. I, you know, that makes total sense to me. To recapture that money through, dividends. So, we, don't have a problem with it. And, you know, philosophically we're, going to look at those and, likely have no problem improving them. The key criteria is to make sure that the minimum capital is maintained in the captive
Travis Wegkamp. And then we'll look, probably the closer thing we'll look at is reserves and make sure they maintain enough liquidity to, pay those reserves should the claim actually come to fruition. So, yeah, we, we're just looking at liquidity solvency of the captive and the regulatory minimum requirements
Host, really. So it's more of an annual exercise with a dividend request. What can it happen more than once a
Travis Wegkampyear? It can happen more than once a year
Host. It's just a filing. They have to
Travis Wegkamp, the captain manager
Travis Wegkamphas to. Yeah, it's something that requires prior approval. We'll take a quick look. And, like I said, you know, we're, we try to be pretty responsive, typically get a dividend review done in a, in a, you know, a couple days a week maximum. It's pretty self-evident to us whether, you know, that, money's available or not. And so, it's a typically pretty quick process. Most will do something annually, but, there's nothing against doing, you know, a couple
Travis Wegkampor, a few a year based on your, claims and your underwriting results. That all
Citations
Sources
- Captive, Utah Insurance Departmenthttps://insurance.utah.gov/captive
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