Small and medium-sized companies that dutifully pay insurance every cycle have had few options to earn back their premiums even when they rarely submit claims.

Larger companies, meanwhile, can run their own insurers and bet on themselves to save money if they do not need insurance reimbursements. Nate Reznicek believes he has found a formula to give smaller companies that same cost savings option with Knox Reinsurance.

Knox Re, a captive program that allows insureds to keep premiums they do not use to cover claims, is intended for all classes of business, Reznicek, director of operations for captive insurance consultancy CIC Services LLC, said in an interview. Through Knox Re, companies can maintain ownership of their insurance programs, which will be fronted and reinsured by top-rated mainstream carriers, and then pocket their earned premiums at the end of the term, he said.

The fledgling entity is intended to fill a niche for businesses that manage risk well enough to avoid claims and do not want to lose all their premiums, especially if their rates have been drifting upward.

"They can keep up to 50% of their insurance premiums ... as underwriting profit in their own insurance company," he said.

Knox Re operates nationwide, but chose North Carolina as a domicile to maintain a state-side presence and take advantage of the captive-friendly regulations it instituted in 2013, the CIC executive said.

North Carolina government officials and regulators made a play for the captive insurance business other states were luring away, according to Debbie Walker, senior deputy commissioner for the Department of Insurance. State leaders decided to set up a hub of sorts to keep premium taxes within its borders and to develop captive service providers such as audit firms, captive managers and actuaries.

"A lot of it was for economic development and also to provide another mechanism with which businesses can manage their risk," Walker said in an interview.

Insurance educator Christopher Boggs believes the niche might be a competitive challenge because the business owners' policies that smaller companies usually buy are well-priced and relatively inexpensive. The types of companies that usually benefit from captive programs are high-risk enterprises in fields like pollution remediation, which have modest revenues and higher insurance premiums, said Boggs, executive director of the teaching arm for the Independent Insurance Agents and Brokers of America.

"Usually a captive program is for somebody who can't get insurance otherwise," Boggs said in an interview. "Or they can get insurance but only at a very high premium."

But Reznicek said Knox Re will be attractive to companies that manage risk well and want the chance to bring down insurance costs by earning back the premiums they pay when they do not generate significant claims.

The program has been employed for group benefit captives, but their coverage categories tend to be limited. Smaller companies have not had access to similar types of policies that cover things like property, umbrella, cyber liability, crime and pollution. Insurers prefer not to offer such coverage to smaller entities because they do not generate enough premium and the buyers are unsophisticated, Reznicek explained.

One of the main challenges for making the formula work was getting mainstream carriers comfortable with the plan. Knox Re leveraged the reputation of CIC Services in the captive space to bring underwriters aboard with premiums aggregated from several companies at a time, Reznicek said.

For its part, Knox Re is compensated out of premiums that insured companies pay to the fronting carriers, which also reinsure. With Knox Re administering the captives and aggregating all the collateral, Reznicek sold the idea to carriers as a program from which they can expect consistent underwriting profits.

"Now it makes sense for us to launch this and bring it to market," he said.