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Captive Insurance Audit

Almost every domicile requires a captive to file audited financial statements within a set window after year end.

That date is the fixed point the entire engagement works backward from, and missing it creates a regulatory problem. For a captive manager running a portfolio, one late audit can affect the relationship with the domicile across the whole portfolio.

We audit captives across multiple domiciles every year. Captive work is close to a quarter of this firm's practice, which means we have capacity to stick to a schedule that fits your needs.

DStructures we audit

Single parent captives, group captives, protected and segregated cell facilities and the individual cells within them, risk retention group, and reinsurance companies.

How Major Programs Are Selected

We identify your major programs using a risk assessment and the dollar thresholds in the Uniform Guidance and the Schedule of Expenditures of Federal Awards (SEFA). For each major program, we then test the compliance requirements that apply under the current OMB Compliance Supplement and the controls of your organization. The number of major programs is the biggest driver of single audit scope and fee.

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What gets examined

Loss reserves and actuarial support. The central judgment area. We evaluate the actuary's assumptions and the data utilized rather than duplicating the analysis. For newer captives with limited loss history, the reasonableness of the initial assumptions carries more weight.

Premium and unearned premium. Revenue recognition and the support for how premium was priced.

Reinsurance and fronting arrangements. Risk transfer substance, collectability of ceded balances, collateral adequacy including letters of credit and trust arrangements, and whether the accounting reflects the contract.

Related party balances. Intercompany agreements and management fee arrangements are evaluated for reasonableness. This area draws regulator attention because it can impact whether or not the captive is viewed as operating as a genuine insurance company.

Investments. The valuation and evaluation of proper accounting methodology utilized for all investments held.

Capital and surplus. Whether minimum capital requirements are met at year end.

Working with captive managers H2

Much of this work flows through captive managers, and the requirements differ from a direct owner relationship. Audit requests are routed through the captive manager, since that’s usually the most efficient path.

Captive managers are assigned a single point of contact across their portfolio. We can schedule the full portfolio on a coordinated calendar rather than engagement by engagement.

What We Need From You

• Trial balance and general ledger, current and prior year

• Actuarial report and the loss data supporting it

• Policies issued during the year and the premium pricing support

• Reinsurance and fronting agreements, including collateral documentation

• Investment statements

• Intercompany and related party agreements

• Board minutes and evidence of the captive operating as an entity

• Domicile filing requirements and deadline

• Prior year audit report and any examination correspondence

Timeline and DeadlinesTimeline

Most captive audits run four to seven weeks of active work. Cell audits within a facility can require additional time, depending on the size of the facility.

The deadline is set by your domicile, most commonly within 6 months of year end, though it can vary depending on domicile. We confirm your specific filing date at engagement and build backward from it. For captive managers, we sequence the portfolio so the tightest deadlines land first.

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What We Need From YouWhat drives the fee

Asset and premium volume, type of investments held, reinsurance complexity, claims management practices, and number of lines of coverage.
We quote a fixed fee after gaining an understanding of the captive.

Common questions

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Can you audit in a domicile you have not worked in before?

Yes. Audit standards are consistent and the domicile specific piece is the filing requirement and format, which we confirm before accepting.

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Do you also prepare the tax return?

Yes, and it is the common arrangement. See the captive insurance tax page.

 

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We are a new captive. When should we engage? 

As soon as the first year is underway. First year audits involve establishing opening balances and understanding the structure, and starting early removes most of the difficulty.

Group -6

Our previous auditor was late. Can you commit to the deadline date?

Yes, our firm has large teams that work on captive audits, so we have capacity to meet the necessary deadlines. If there is something unique about the captive and/or deadline that causes concern, we will share those concerns about timing upon initial engagement.

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Do you provide captive management?

No. We work with captive managers in a collaborative relationship.

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Will you flag issues with our structure?

Yes. If something in the arrangement looks weak, particularly on the tax side, we tell you rather than auditing around it.

Request a captive audit proposal 

Tell us the structure, the domicile, and the filing deadline. If you are a captive manager, tell us about your portfolio needs. We can provide fixed pricing for a single captive or any segment of the portfolio that you would like.