Why Form a Captive Insurance Company?

Having one’s own captive gives a much greater degree of control and self-determination than can ever be achieved by insuring in the conventional insurance market.

Complaints most commonly leveled at Insurers in the conventional market are:

"Insurers take our annual premiums up-front and we loose utility of the money that we could otherwise invest".

"Premium fluctuations are cyclical and no help to long term budgeting for cost of risk".

"Policy coverage’s are generally "off-the-shelf" products which do not readily lend themselves to our unique requirements".

By forming a captive, an organization may avoid the administrative on-costs of a conventional insurer who factors all premises and resource costs and who write to predetermined profitability ratios.

Premiums are paid into the captive at intervals that better reflect the cash flow position of the parent and the premiums are invested for the benefit of the same economic family. A captive has direct access to the reinsurance markets. They operate with lower overheads and so the captive enjoys catastrophe protection at a premium reflective of the unique loss record of the parent rather than an industry group.

The advantages of having a captive are many; pricing and cash flow management are only two of the major advantages. This is evidenced by the continued formation of new captives each year – even in ‘soft’ markets.