Fiat Lux

Case Study


In the Fall of 2012 the Regents of the University of California, in collaboration with the Office of Risk Services, successfully formed a captive insurance company, the Fiat Lux Risk and Insurance Company (Fiat Lux). A captive is a limited purpose, licensed insurance company; the main business purpose of which is to insure the risks of the captive’s owner, who is also its principal beneficiary. The captive insurance company owner has direct involvement in and influence over the captive’s major operations, including underwriting, claims management, policy form, and investments. Fiat Lux operates by and for the UC.


The Fiat Lux Risk and Insurance Company’s mission is to enable the University faculty, staff, and students to identify and manage risks associated with their activities, consistent with the University’s missions of teaching, research, and public service. By strategically managing risk we can reduce the chances of loss, create greater financial stability, and protect our resources.


The Chief Financial Officer in coordination with the Office of Risk Services commissioned a feasibility study, conducted by the University’s actuarial and risk consulting firm, Bickmore Risk Services, which concluded that the formation and utilization of a captive insurance company to complement our existing self-insurance program would be beneficial. The captive insurance company will reduce UC’s cost of traditional insurance, while giving it greater control over the various risks for which it is responsible. Many large public and private entities have successfully used captives to achieve significant cost savings and to offer improved risk and insurance-related services. The study revealed that captive insurance technologies would provide the University the flexibility to meet several of its risk management objectives, including lowering costs and enhancing coverage. Utilization of a captive insurance company would not represent a change in risk retention on the part of the Office of Risk.


Although there are hundreds of higher education institutions that own or participate successfully in captive insurance structures in the United States, the captive concept is new to the UC. Considering the University’s culture change environment, it will take some time and careful planning to introduce Fiat Lux, it’s insurance capabilities, and adoption of captive practices to the University population.

Initial investment

Annually the captive must file audited financial statements and meet specific filing requirements with the domicile regulatory authority. The assets of Fiat Lux, as a nonprofit corporation, are intended to be irrevocably dedicated to University purposes. The captive insurance company will be initially capitalized through cash contributions, estimated to be $100,000.

Fiscal results, current and anticipated

A captive insurance company will yield the following benefits:

• Because it is a self-insurance vehicle, the captive is not subject to the wide swings of commercial insurance pricing and therefore use of a captive improves cost stability and predictability.

• Non-traditional (e.g., earthquake) and difficult to place risks (construction surety bonds) may be accommodated in a captive.

• Captive insurance companies are held to rigorous external accounting and auditing standards, which compel formalized risk financing policy and practice.

• Because it is considered a formal “insurance company,” a captive insurance company can directly access the reinsurance markets. This increases the number of insurance companies available to compete for UC business.

• A captive would facilitate the provision of insurance to non-UC organizations (third parties such as affiliated physicians or joint ventures).

• Because the captive controls and issues the captive insurance policy (or “policy of indemnification”), it is able to structure terms and conditions. Instead of issuing their own policies, reinsurers would be asked to accept the terms and conditions of the captive company. Consequently, terms and conditions can be structured to enable the owner to control claims all the way up to the ultimate limit, eliminating control of claims by insurers and provides UC final decision-making authority over if and when to settle, regardless of the amount of the claim.

• The captive strategy is financially superior to the current program by an estimated $7.3 million after five years.

Current action and next steps

Once Fiat Lux is fully established and writing initial coverages, other key elements in the UC’s ERM program will be considered for expanded captive utilization: UC Contractors Insurance Programs (UCIPs); Medical Malpractice for community physicians; Student, Alumni, and Affiliate insurance initiatives; areas of risk where there is little or limited commercial capacity; and special or unique needs for the UC.

Concluding statement

The advantages offered by Fiat Lux as a captive insurer are considerable. The ownership of the captive permits the UC to create customized insurance products and underwriting standards to fit the specific circumstances of the whole University, particularly in cases where coverage might otherwise be unavailable or prohibitively expensive. Further, the cost savings offered through the captive will insure the University control and stability in an otherwise volatile financial climate.