Turning premiums into profits.

1. What is a captive? A captive is a private insurance company structured to provide insurance or reinsurance to related entities. Captives may be single parent captives or group captives. The RFCP is a group captive.

Captives have been around since at least 1922. Companies who use captives avoid commercial insurers’ overhead expenses and receive back any underwriting profits and investment income.

2. Why change to a captive from my present insurance? Joining a captive is a decision to "own" insurance rather than rent it. While the premium is similar, the benefits of owning part of a captive can be significant; among them better loss control and claims services, as well as underwriting profits returned to you.

You also have a far greater degree of control in the settlement of claims and may decide to fight a claim you suspect is fraudulent to "send a message" to other employees, where an insurance carrier will do what is in its best economic interest. Over the long term, given the RFCP program structure, multiple layers of protective safeguards, highly selective underwriting criteria, and state-of-the-art claims and loss prevention services, the probability is quite high that you will earn a profit on your insurance premiums.

3. Are captives widely used now? By whom? There are approximately 10,000 captives in operation globally. About 80% of the S&P 500 companies utilize captives. More and more middle market companies are discovering the many benefits of captive ownership.

4. How does group captive insurance work? A group captive is formed by multiple companies acting together. These companies may not be large enough to form a captive of their own. But by joining together with other companies of similar sizeor industry, they can form a large enough risk pool to provide some year-to-year stability in claims. A Third Party Administrator pays claims, and a program manager manages the day-to-day business, sets rates, and secures stop-loss insurance.

5. What is stop-loss reinsurance? It’s what limits the captive’s risk. The RFCP has both specific and aggregate stop loss protection. Specific stop loss coverage limits liability for each claim, while aggregate stop loss coverage assumes liability for thetotal claimscostthat exceed a specified amount in any one year. The combination of these two coverage’s limits the members risk and fully securitizes the captive.

6. Can one policy year affect other years? No. Each year stands alone, so a “bad” year is isolated and does not affect prior or future years.

7. What is meant by up to a 3 to 1 ratio of upside reward to downside risk? This ratio is determined by dividing the maximum potential return of loss fund dollars by the maximum risk as represented by the amount of required program collateral posted by each member. The ratio is 2 to 1 (60% - 30%) for the entrée program.

8. What happens if I choose to leave the RFCP program? We differ from many other restaurant programs and self insured groups in that your underwriting profits and investment income are not reduced or delayed if you decide to leave the program. You will receive your fair share of the annual distributions along with current program members.

9. Will I earn profits and dividends? A captive makes a profit like any insurance company. By charging premium to cover risks and investing underwriting profit and loss reserves. The RFCP has the most aggressive loss control and claims management programs in the restaurant industry to keep losses low. When losses are low, members receive a substantial return on their paid-in premium.

10. Will joining the RFCP affect my workers’ compensation experience modification? No. ARCH is your carrier in the eyes of the state insurance regulators and rating organizations. They make all of the necessary filings, pay taxes and guarantee fund assessments on your behalf. As a result you will continue to have an experienced modification factor.

11. What are the advantages of the Restaurant Franchise Captive Program? RFCP returns 60% of your paid-in premium minus your claims costs. The RFCP program has returned over $10.4 million to its members in the last ten years.

The program offers protection for large losses through risk sharing and reinsurance, so that one severe claim alone does not disqualify you from receiving a share of the underwriting profit.

The RFCP’s customized, behavior-based safety program helps owners create a “safety culture” at their companies. The RFCP program members have reduced their pure loss rates by over 65%.

The RFCP claims administrator works for you, not an insurance company.

12. Where is the captive located? The captive itself is housed in a “segregated cell” captive named Atlantic Gateway International Ltd. (AGIL). AGIL is managed by York ARS and is domiciled in Bermuda. The captive is available through York Alternative Risk and other selected insurance brokers across the U.S. It is managed by York ARS.

13. Will a captive be right for my business? Captives are ideal for high quality companies that have superior management, a focus on safety and that have achieved historical loss ratios that are lower than the industry average.

14. Are all the captive members from the same industry? Yes. The RFCP members are all restaurant franchisees, franchisors, or owners of large restaurant companies.

15. How do you select the participating companies? We are very careful to select only companies that have superior management, a focus on safety, and that have achieved historical loss ratios significantly lower than the industry average.

16. What are my responsibilities as a captive owner? The RFCP has experienced professionals who manage all of the daily aspects of the captive. Captive owners elect and may serve as directors, participating in development of program management policies. Owners must also participate in the RFCP safety programs,attend safety meetings and claims reviews. The owners arealsoasked to attend quarterly and/or annual captive meetings.

17. How does the RFCP protect against bad loss performance? Through initial screenings of prospective members and very aggressive and sophisticated loss control programs, the RFCP works to keep each owner’s losses to a minimum. Each owner signs an agreement promising to fully comply with all loss control policies and recommendations.

18. What are the start-up costs and capital? Each participating company posts collateral of a specific amount, depending on the premium size for that company. Collateral is in the form of cash or a bank Letter of Credit.

19. What is the life span of a captive? A captive may last as long as it continues to meet the needs of the participating companies. The RFCP was started July 1, 2004 and is in its eleventh year of operation.

20. Who manages my money and where does it go? RFCP premiums are paid to York Alternative Risk Solutions, which manages the program. York pays reinsurance premiums to ARCH. Over 50% of premium is deposited in a claims trust fund. The remainder pays for ongoing expenses of administration and taxes. York is the overall program manager and controller, and is responsible for the financial integrity of the program. Members receive detailed financial reporting on a quarterly basis.

21. Are Flood and Quake offered in the program? Or, do they have to purchase that separately? No, Flood and Quake are NOT offered in the program. They must be placed separately.

22. Will the program consider a new venture? The specific question is regarding an operator that has years of experience in running a restaurant operation and is going out on their own? By new venture, do you mean a totally new restaurant operation, or an existing franchise or independent restaurant operation that this experienced person is buying or taking over? If it is a totally new restaurant operation that did not exist before than the answer is no, we cannot underwrite it. Such an operation will also not likely meet the program minimum premium ($150K for Entree) since it will likely start with one location. If it is an existing operation with enough locations to meet the program minimum premiums, with available loss history that an experienced operator is buying, we could certainly entertain writing such an operation, subject to our normal underwriting process.

23. Does the program offer an umbrella or does the agent have to place that separately? No, Umbrella coverage is written outside of the program. The RFCP only provides the primary coverages. We are very familiar with a number of specialty Umbrella programs for restaurants that are available to all brokers and will share this information with our partner brokers.

24. I’m interested-what’s next? To get more information, contact Lori Ross at lori.ross@yorkrsg.com or call at (337) 230-5437.