One of the biggest initial considerations for companies evaluating different for their insurance company is how much capital and surplus will be required. When a company sets up a captive, it is required to “fund” it. Every insurance authority wants assurance that captives formed in their domicile will be able to meet the financial requirements of the risks they are . They therefore require evidence that the captive can pay claims made against the policies that are written.
In addition to the capital requirement, domiciles have surplus minimums. Surplus is an amount that is additional to what the captive needs to meet its financial responsibilities for policies it has underwritten. It represents additional capacity for the captive to write new policies.
Each domicile has specific guidelines for minimum capital and surplus. Based on those guidelines, one domicile may emerge as a better fit for a company’s particular risk profile. A careful reading of each domicile's captive law is important.