Revisiting the captive concept

Current market conditions are prompting more discussions around alternative risk financing. The trend towards increased retentions will almost certainly lead to more extensive utilization of captives, even by businesses that may have previously discounted this approach due to lack of scale.

What is a captive?

A captive is a bona fide insurance or reinsurance company owned by a non-insurance company parent which primarily insures or reinsures the risks of its parent and/or affiliated companies, usually formed in a specialized regulatory environment – a domicile.

At a very basic level, a captive is a form of risk retention mechanism (like a deductible) that is used to aggregate premium and loss information for its parent. Captives can make risk financing more cost effective and ultimately reduce an organization’s Total Cost of Risk. Captives also control the budget that is allocated to risk management and will pay for the company’s losses.

What are the benefits of captives?

A captive can provide several advantages to organizations across all industries and geographies, and close to 6,500 captives worldwide have proved to be very effective tools to control and manage risk over the last 30 years.

Benefits of a Captive

 

However, before deciding to establish a captive, you need to carefully consider the capital commitment, the risks of adverse results, operating costs and the commitment of the management team.

Why should you read this guide?

This guide aims to help you understand how the formation of a captive could benefit your business, and answers the following questions:

  • Is a captive right for my business?
  • Who uses captives?
  • What are the common types of captive structure?
  • Where should I establish my captive?
  • How should I set up my captive?

Whether you’re forming a captive insurance company for the first time or re-evaluating your current practices as part of your risk retention program, we hope this guide acts as a useful resource.

 

Revisiting the Captive Concept E-book

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