Captive Insurance

A captive is an insurance company whose main business purpose is to insure the risks of its owners and affiliated companies. The term ‘captive’ was first used in the 1950s by Fred Reiss, a US property insurance engineer who was working for a client who wanted to insure its coal mines. Reiss’ client could not afford to pay the insurance premiums charged by insurers at that time because they had increased substantially.

Reiss therefore came up with the idea of incorporating an insurance company fully owned by the client whose sole purpose was to insure the risks of its owner.
There are over 6,000 captives worldwide writing a total of more than USD 60 billion of premiums annually. Companies also use their captives as a tool to manage and control their risks.

We offer a range of captive formation and management services across popular jurisdictions.

Feasibility study                                                                         
The main purpose of a feasibility study is to determine the viability of forming and operating a captive. This will include an analysis of the proposed retentions and retained coverages and the production of the financial projections for the captive.

Formation                                                                                 
Management of incorporation and licensing process
Production of business plan
Liaison with the regulator and other third parties

Advantages of a captive                                             

Lower insurance costs                                                              
Commercial insurance premiums include estimated claims as well as broker commissions, marketing costs, underwriting expenses, claim administration, general overhead expenses, and insurance company profit. Using a captive, a company can significantly reduce most of these expenses which represent around 35% of commercial insurance premiums.

A captive will also have direct access to the reinsurance market and will have additional negotiation power when renewing existing insurance coverage with commercial insurers.

Retention of underwriting profits                                                
Insuring risks with a captive generally leads to enhanced risk management efforts and reduction in claims. To the extent that actual claims are less than expected, the captive can retain underwriting profits.

Insurance costs stability                                                           
Using a captive, a company can reduce its dependence on commercial insurer whose pricing vary according to the hard and soft market cycles.

Tailor-Made insurance solutions                                                
A captive can provide insurance coverage for risks which may otherwise be uninsurable or for which coverage may not be available at reasonable costs.

Enhanced risk management                                                      
The presence of a captive generally creates incentives for more proactive risk control and claims prevention. A company will be able more effectively monitor its claims experience using a captive.

Tax benefits                                                                            
Insurance premiums paid to a captive are treated the same as insurance premiums paid to commercial insurers and can be included as an expense in the company's income statement.

Risks a captive can insure                                                        
The traditional types of risk covered within a captive include
General / Third Party Liability
Property
Employer's Liability
Automobile Liability
Professional Indemnity
Product Liability
Environmental Liability
Directors & Officers Liability
Aviation
Marine