Captive InsuranceCaptive DefinitionA captive insurance company can be considered a risk-financing method or form of self-insurance. Captive insurance companies are formed to serve the insurance needs of the parent organization and to help alleviate fluctuations in commercial insurance availability and cost. The participants of a captive have a direct involvement and influence over the company’s operations, including underwriting, claims, management policy, and investments. Types of CaptiveSingle-Owner Captive (also called single-parent)This type of captive insures the risks of its parent and its affiliates. Many single-owner captives develop third party business, writing insurance for non-related organizations. If a captive writes only the insurance for its parent, it is considered a pure captive. Association CaptiveA type of captive formed to insure the risks of companies involved in the same or similar industries. Access is typically restricted to association members. Agency CaptiveCaptives owned by insurance agencies, formed to insure the risks of the agencies clients. Typically set up as a rent-a-captive. Rent-a-CaptiveRent-a-captives are insurance companies that provide access to captive facilities without the user needing to provide capital for his own captive. The user is charged a fee for use of the captive and must provide a form of collateral to cover any underwriting losses a captive may experience. Captive PoolsGroups of individually-owned captives that combine to reinsure one another. Captive DevelopmentWhy create a captive?There are many reasons and benefits for forming a captive. Many believe that the forming a captive is simply a way to minimize taxes, however, there are many logistical and economical reasons as well. Some of them include...
Is a Captive a Good Choice? When to consider a Captive.Captives are certainly not the answer for everyone or every situation. There are many essential prerequisites that an organization must first understand before creating or joining a captive.
Captive Feasibility StudyThe ultimate decision to form a captive must be initiated through an in depth examination of the advantages, disadvantages, and costs associated with the organizations current insurance program scenario. A formal approach to this examination is called a “feasibility” study. The feasibility study can determine if the formation of a captive is warranted and or justified. A feasibility study is typically performed by an independent entity to help accurately depict the viability of captive formation. This study is essential to the future long-term success of a captive program. Choosing a DomicileOne of the most important steps in the formation of a captive is deciding where to locate the captive insurance company. Some of the domicile selection factors are...
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