What is a Captive?
Captive Insurance Companies are like families – you can tell they belong together even though it may be hard to find two that look alike!
In the traditional definition, a Captive is an Insurance Company established to insure some of its Parent Company’s Insurable Risks. However, there are many exceptions and extensions of this definition. For example, Captive Insurance Companies can also be owned by affinity groups, associations or professional bodies to insure its members, or by Insurance Brokers to insure their clients.
Often Captives are formed to satisfy Insurance needs that the Commercial insurance market is unwilling or unable to satisfy competitively. In many cases, these are mission-critical insurance coverages that must be in place to allow the Sponsoring entity to function effectively.
While the history of Captives can be traced back arguably as far the small hull insurance Clubs that were formed by British shipowners in the 18th century, over the last twenty years these have become mainstream risk management vehicles for the Fortune 500 Companies, and beyond, enabling Companies, among other things, to:
• Reliably obtain Insurance to support their businesses
• Reduce Insurance Company overhead,
• Capture underwriting profits,
• Build up claims reserves tax-efficiently,
• Retain the investment proceeds on their premiums.