The easy answer to this question is "yes, no, maybe." Another good answer is "it depends." Can you see where I'm going with this? There is no single, best answer to this question.
The only constant is that the majority of captive domiciles require some sort of documentation that suggests that the applicant has thought about this and has a reasonably good reason to form a captive.
There are three types of captive feasibility studies: comprehensive, close-to-comprehensive (financial-only), and self-serving (nonfeasibility). The first one is designed to reveal whether or not a captive is truly feasible. Now you're asking, isn't this what they all do? Well, no. As we'll see, there are many definitions of the word "feasible."
The Comprehensive Study
The comprehensive variety is usually the most expensive, as it requires the consultant to gather a lot of historical data, crunch a lot of numbers, research appropriate domiciles, discuss ownership options, provide the pros and cons of cell captives versus equity (owned) captives, determine whether or not the captive might qualify to use insurance accounting, etc.
This type of feasibility study is the real McCoy. It's generally required by large organizations wherein the risk manager must have solid reasons to support his or her recommendation(s) to senior management. It's the foundational document that memorializes the reasons why the company either formed or did not form a captive.
The Financial-Only Study
The second type of feasibility study is a truncated version of the first type. It is, of course, less expensive than the comprehensive study. Companies that commission this type of study are mainly interested in the financial impact of a captive (i.e., actuarial results, insurance accounting eligibility, and pro forma financial statements). Mid-sized companies with less bureaucracy and less formal internal procedures than large organizations tend to favor this version.
These types of companies are often very cost-conscience and consider the financial impact to be the most important aspect of the study. They also figure that if the numbers work, they'll focus on the qualitative issues.
The Nonfeasibility Study
Finally, we come to the third type of captive feasibility study—the type I like to call "Feasibility study? We don't need no stinking feasibility study!" (with apologies to The Treasure of the Sierra Madre). These studies, if you can call them that, cost next to nothing and are grudgingly requested by sole proprietors of mid-sized companies.
You've probably guessed by now that these folks have already determined that they want a captive, and no feasibility study is going to stand in their way. These "studies" are simple affairs. They're usually about three pages long and describe, in the fewest possible words, why they want a captive and what they're going to do with it. Many domiciles accept this type of nonfeasibility study. Others require a bit more detail. As the captive manager almost always prepares the captive's business plan as part of the application process, very often this is enough to satisfy the regulator.
Of the three types, I, of course, favor the comprehensive version because it covers all the bases. Consultants are (or should be) concerned that a document titled "Feasibility Study" will be assumed to be a real, honest-to-goodness feasibility study. The problem is that the second two types do not strictly meet the definition of a feasibility study; they're limited by the client's requirements, which are rather difficult to document.
Conclusion
When it comes to captive feasibility studies, you often get what you pay for. Naturally, a comprehensive, well-documented feasibility study will cost more than the financial-only and nonfeasibility studies, but it will be well worth it for the data it reveals.
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