Captive structures that a company forms commonly involve the company becoming the shareholder of its own insurance company, either directly or indirectly. This alternative risk financing structure provides succinct advantages for participating captive customers working in conjunction with their trusted agent / brokers in developing critical risk mitigation resources via the“ unbundled risk service” nature allowable in captive structures including:
Global growth in usage of catives
10,000
9,000
8,000
7,000
6,000
5,000
• Direct customer / broker maintaining control over the actual total cost of risk.
• Direct customer / broker having access to specialist captive reinsurance markets.
• Direct customer / broker maintaining control over company claims administrator and risk service providers.
• Direct customer / broker structuring risk mitigation innovations.
4,000
3,000
2,000
1,000
1985 using captives since the 1950s, and it is fair to say that the captive insurance sector has weathered many storms providing direct risk benefits to their owners and participants over the past 75 years.
The primary purpose of a captive insurer is to provide coverage for the risks of its owners, ensuring that the
Source: Captive Review
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insured parties benefit from the underwriting profits generated by the captive
Captives are being utilized by businesses all across the U. S. and worldwide for a variety of risk management reasons including strategic, financial, operational as well as a result of traditional insurance market condition instabilities.
Key Elements for Consideration
Captives are often established by firms that are experiencing consistently unacceptable renewal terms from traditional insurance markets. This can often be the result of increasing claims costs in a select industry segment or line of business, or it could simply be as a result of negative market dynamics – with opportunistic traditional insurance markets.
However, any consistent year-over-year renewal pricing increases by traditional insurance markets typically are the result of a growing shortage of reinsurance
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