Capitalization Requirements

Contributions to Capital

Depending on the jurisdiction in which the captive is formed and the nature of the risks being insured, the premium-to-capitalization ratio required may be in the range of three-to-one to four-to-one.  Thus, for a captive to write $1 million of premium in a domestic jurisdiction, the captive owners may be required to contribute $250,000 to $300,000 of capital.

Letters of Credit

In some cases, business owners who prefer not to tie up capital in the captive use a bank letter of credit ("LOC") to fund the captive's capital requirements.  Captive insurance regulators in some jurisdictions will not accept this form of capitalization.  Certain banks and trust companies have devised a secured trust structure to serve as a substitute for funding by LOC.

Capital Requirements, by Domestic Jurisdiction

Kentucky, Minimum Capital and Surplus Requirements