Captive Primer

The “captive” concept can trace its origins back to the beginning of formalized trade. One of the first captives was formed in the late 1800s, and was designed to write more cost effective fire insurance policies for New England textile manufacturers that were hit hard by increasing market rates.

CHARACTERISTICS OF ORGANIZATIONS MOST SUITED FOR A CAPTIVE:

  • The involvement of a financially oriented client with the desire and ability to assume significant underwriting and investment risk.
  • A dedication to results and an expectation of underwriting profit.
  • A commitment to a Captive for the long-term.
  • Cash on hand and the willingness to tie up capital and letters of credit over multiple years.
  • A desire to control the elements of their risk financing program:
       Cash flow, coverage wording,
       retentions and limits.
  • An interest in unbundled services.

Although there are no official records regarding the number of captives, it is estimated that there are approximately 4,936 worldwide, with the primary purpose of insuring the risks of its owners. Current estimates of premiums written or reinsured by captives are in the region of US$60 billion.

While conventional insurance continues to be a common form of risk financing, an increasing number of organizations are seeking alternative solutions. The formation of a group captive insurance company is well suited for a mid-sized corporation desiring to take control of its insurance program.