Hotel Online
News for the Hospitality Executive


advertisement


Hotel Lawyer: How do you know when you should set up
a captive insurance company for your hotel?
Take our "litmus test".


By Jim Butler and the Global Hospitality Group®, 
Author of www.HotelLawBlog.com
June 28, 2011

For the most recent update on this topic, click here

Hotel Lawyer: A litmus test to tell when a captive insurance company may make sense.

My partner, Gordon Schaller, is one of the top experts in the country advising businesses on how to set up a captive insurance company and his recent posts in the Hotel Law Blog have been of particular interest to hotel owners who want to know if they qualify as potential candidates for captives.

Today, Gordon offers a "litmus test" for hotel owners to determine if they should investigate the opportunity to set up a captive insurance company.

Setting up a Captive Insurance Company - Do You Qualify?
 

by

Gordon Schaller | Hotel Lawyer, JMBM Global Hospitality Group®

What are captive insurance companies and why should you care?

If you have not yet read our other articles about captive insurance companies, you will want to check out Captive Insurance for Hotel Owners, which describes how hotel owners can protect their business and save money by forming a captive insurance company.

You should also look at The Benefits of Owning Captive Insurance Companies, which outlines a number of attractive "ancillary" benefits that enable owners of the captive to achieve certain business and personal objectives.

Who sets up captives?

What kind of business owners set up captive insurance companies? Starwood, Wyndham, and Harrah's (and many other hotel and gaming companies) all have captives. Marriott's captive was used to pay for part of the cost of rebuilding its hotel in Islamabad, Pakistan, after a suicide truck bombing destroyed it in September 2008.

Virtually all major private home builders have captives (dealing with construction defect claims and subsidence claims) as do most major owners of car dealerships and other companies that sell extended warranty insurance contracts (for example, Best Buy).

Numerous firms in the construction and manufacturing businesses have also formed captive insurance companies. Finally, the vast majority of the Fortune 500 own captive insurance companies. A captive insurance company might be right for you, too.

But you don't have to be that big to benefit from a captive insurance company. Here are some ways to determine if it might make sense for you.

When should you think about setting up a captive?

While each business has unique factors that may impact the viability of a captive insurance company, here are three pretty good indicators of whether a captive insurance company makes sense for a hotel owner. If you meet any one of these tests, you should look further into this opportunity.
  • If your hotel business has annual sales of at least $75 million - $100 million, or
  • If your current commercial property and casualty (P&C) premiums are at least $500,000 annually, or
  • If you suffered a recent large casualty loss (e.g., wind and weather, flood, fire, a sexual harassment lawsuit)
When deciding whether to establish a captive, the hotel owner should be prepared to pay premiums of at least $500,000 on the new policies that will cover risks insured by the captive, as determined by independent actuaries. Since most of these risks are outside the scope of the existing commercial P&C coverage, this amount will be in addition to current premiums. Since all of the captive policies are based on "claims made" during the premium year (the ensuing 12 months), it is not required that the same coverage be continued each year. The policies can be changed or eliminated or new policies written from year to year.
Many legal, insurance and financial considerations bear on the decision to form a captive insurance company, so always obtain the advice of experienced professionals early in the process.


_______________________


Gordon Schaller is a partner in JMBM's Taxation, Trusts & Estates Department, and a senior member of JMBM's Global Hospitality Group®. Gordon helps businesses set up captive insurance companies and advises them in a full range of strategies to achieve tax efficiencies. For more information, please contact Gordon Schaller at 949.623.7222 or GSchaller@jmbm.com.

________________________

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from troubled hotel transactions. Who's your hotel lawyer?

________________________

Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

JMBM's troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE "JMBM SAVE program".)

Whether it is a troubled investment or new transaction, JMBM's Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.



JMBM’s Global Hospitality Group®
The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com.
.
Contact: 

Jim Butler
jbutler@jmbm.com
310.201.3526

 

.
Receive Your Hospitality Industry Headlines via Email for Free! Subscribe Here  

To Learn More About Your News Being Published on Hotel-Online Inquire Here
 
Also See: Hotel Lawyer: What you need to know about the "ancillary benefits" of setting up a captive insurance company / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer: Are you thinking about setting up a captive insurance company? Maybe you should be. . . / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer in New York with pre-NYU industry forecast: Sunny with occasional clouds and NO storms on the horizon / Jim Butler / June 2011

Hotel Lawyer with the Executive Roundtable Results; Debt is returning, equity is out looking, and we've passed the bottom of the trough. Why now is the time to purchase a hotel. / Jim Butler / June 2011

ADA Defense Lawyer: How to Quickly Lose Business. (No ADA-Compliant Reservation System) / Jim Butler & David Sudeck / May 2011

Hotel Lawyer with Fresh Perspectives on the Hotel Industry from Smith Travel / Jim Butler / May 2011

Hospitality Lawyers with PKF and Mark Woodworth's Lodging Overview / Jim Butler / May 2011

Hotel Lawyers' Updates on Capital and Debt Markets for Hotels, Transaction Sales Data and Financings / Jim Butler / May 2011

Hotel Lawyer with Updates on Hotel Cap Rates, Values and Transactions / Jim Butler / May 2011

Hotel Lawyer with nuggets from JMBM's Meet the Money® 2011 / Jim Butler / May 2011

Hotel Lawyer: The hotel transaction market is heating up! / Jim Butler / April 2011

Hotel Lawyer with good news! A new federal court decision upholds condo hotel structure. No "securities" involved as structured. Disgruntled condo hotel unit purchaser lawsuit dismissed. / Jim Butler / April 2011

Meet the Money®: Hotel Financing Renaissance is Underway! / Jim Butler / April 2011

JMBM’s Global Hospitality Group® announces publication of The HMA Handbook, a FREE practical guide for negotiating Hotel Management Agreements for Hotel Owners, Developers, Investors and Lenders / March 2011

Buying a Hotel? Don't Buy an ADA Lawsuit or DOJ Investigation / Jim Butler / March 2011

Hotel Lawyer on Hotel Management Agreements: Exculpation Clauses for Protecting the Owner's Assets / Jim Butler / February 2011

ADA Defense Lawyer: How to handle an ADA lawsuit....and How not to do it / Jim Butler / February 2011

Hotel Lawyer: 5 Key Elements for Good Hotel Management Agreement Budget Provisions / Jim Butler / February 2011

How improving fundamentals make 2011 the year of "Great Expectations" for the Hotel Industry / Jim Butler / February 2011

Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry! / Jim Butler / January 2011

Hotel ADA Defense Lawyer: How a recent ADA case affects all hotels but particularly conference centers and meeting hotels / Jim Butler / January 2011

Hotel Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right / Jim Butler / January 2011

Sheraton Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group® / Jim Butler / January 2011



To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch

Home | Welcome| Hospitality News
| Industry Resources

Please contact Hotel.Online with your comments and suggestions.