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What is captive insurance

what is captive insurance

What is Captive Insurance?

In today's challenging insurance market, coverage is being tightened, capacity reduced and prices increased, creating a positive climate for alternative risk transfer and captive insurers.

Captives and other alternative risk programs can provide cost savings, cash flow benefits, and specialized loss prevention and claims services not otherwise available through traditional programs.

Captives can allow your company to reduce overall insurance costs while having broader flexibility in choosing services. To fully benefit from the advantages of captives and alternative risk management programs, you need the experience of a market specialist in captive insurance services.

RGIB captive insurance services can provide captive management, risk management, and risk finance consulting solutions for a wide range of issues specific to complex risk and alternative risk financing to meet your company's needs while helping you achieve your company's strategic goals.

Our network of affiliate captive insurance service providors have a diverse portfolio of client captives, the majority of which originate from the following countries:

  • Australia
  • Canada
  • France
  • Republic of Ireland
  • Italy
  • Japan
  • New Zealand
  • Sweden
  • United Kingdom
  • United States
  • Germany

In addition, the captives under our management insure a variety of programs including:

  • Aviation & Marine Risks
  • Primary Casualty Programs
  • International Property Programs
  • Excess Programs
  • Professional Liability Programs
  • Association Programs
  • Warranty and Special Risk Programs
  • Reinsurance Assumed Programs
  • Reinsurance Ceded Programs
  • Proprietary Programs

For more information about Captive Insurance please click here .

Forming and Managing a Captive

The term "captive formation" (often used by offshore service providers, in particular) is a very misleading in that it implies that forming the company is the beginning and end of the captive process. In fact, the process of putting together a captive insurance program involves considerably more than forming a corporation and filling out an insurance license application.

The very first step is to investigate the economic feasibility of a captive program. The initial steps can be relatively informal, but if the initial inquiry leads to the preliminary conclusion that a captive makes economic sense, a formal feasibility study involving an actuarial firm should be undertaken. The study will examine the types of risks to be underwritten, the layers and levels of risk to be assumed by the captive, the layers and levels of risk to be shifted to reinsurers, the premiums and reserves that will be required, and an analysis of one or more potential captive jurisdictions.

If the formal feasibility study validates the captive concept, a detailed application, including the feasibility study and a business plan, is submitted to the insurance commission in the jurisdiction where the captive is proposed to be formed. If the application is approved, the company is

formed. After the company is formed and the required minimum reserves have been deposited in the company's bank account, the insurance commissioner issues the insurance license and the company can begin business.

Treatment of insurance contracts as insurance for tax purposes and treatment of a company as an insurance company for tax purposes has little to do with the company's insurance license. First, the insurance company must be operated as an insurance company. It truly must be in the business of insurance and must earn the majority of its revenue from insurance business.

As a licensed insurance company and as a company legitimately in the business of insurance, the captive must employ or contract with auditors, lawyers, accountants, actuaries, insurance managers, claims managers and other supporting service providers. These services don't come cheap. However, in order that a captive has made it through the formation and licensing process, it already has been determined that it is economically feasible to bear these costs and still make a profit.

Implementing a small captive insurance program usually involves first-year costs of about AUD$50,000, including the legal and other professional work necessary to fit the captive into the owners' existing business and estate planning structures. Ongoing annual costs for management and professional fees usually are applicable and will depend on how the insurance structure matures.

Obviously, these cost levels mean that captives don't make economic sense for many smaller businesses. This is one of the reasons that initial feasibility studies are particularly important.

A captive insurance program is one of the best risk management and asset protection tools available for many businesses and business owners, but it does not come without significant responsibilities and costs.

Jurisdictions of Formation

Where to form a captive? Captive insurance companies often are formed offshore, in so called "debtor-haven" and "tax-haven" jurisdictions. No local taxes and lax regulation made life relatively easy for many captives before some of the offshore jurisdictions began to tighten up captive regulation.

However, over the last few decades, Some long standing jurisdictions specializing in captive insurance are Bermuda, Vanuatu, the Cayman Islands, Guernsey, the Isle of Man and Luxembourg, the British Virgin Islands, Gibraltar and Dublin and even a number of U.S. states have enacted captive insurance company legislation, with Vermont leading the way in size of its captive insurance industry. Nearly half of the states have captive legislation, and several U.S. jurisdictions, including Vermont, Hawaii, South Carolina, Arizona, Montana, Utah, and the District of Columbia are aggressively pursuing and attracting new captive business.

The choice of jurisdiction will depend on many factors, not least the types of risks to be insured and where.

For more information about Captive Insurance please click here …

For enquires concerning your Captive Insurance requirements please direct your enquiry to Mr Charles Pratten, Business Development Manager at or phone (Aust) 1 800 227-473 - (Int) 612 9466-000

Category: Insurance

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