Ownership has real obligations:
- Retained risk. Good years generate surplus; bad years deplete it. Reinsurance can be used to cap the worst outcomes, but volatility that once belonged to an insurer now belongs to you.
- Committed capital. The captive must hold capital to demonstrate solvency. It stays on a balance sheet you control and can eventually return to the parent, but it is committed while the program runs. Businesses carrying heavy debt loads may find this dynamic challenging upfront.
- A company to govern. A captive is a regulated insurance company with board duties, audits, and filings. A full-service manager carries the operational lift, but the accountability is the owner's.
- A long-term horizon. The economics compound over years. A captive formed only for next quarter's premium problem may disappoint.
None of these is a reason to avoid the structure; they are reasons to structure it correctly. Luzern exists to make sure that's the case for your business.
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