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About Captives

What is a captive insurer?

A captive insurer is a legal entity formed primarily to insure the risks of one corporate parent or a number of similar corporations (e.g., trade associations) thereby contributing to a reduction in its parent's total cost of risk.

  • An alternative method of managing and financing risk
  • The most flexible and aggressive form of self-insurance

Why form a captive?

  • Lower insurance and reinsurance costs
  • Increased profits and cash flow
  • Increased availability of coverage
  • Custom tailored coverage
  • Direct access to reinsurance market
  • Improved risk management, loss control and prevention
  • Favorable loss experience rewarded
  • Cost control
  • Possible tax deferral or reduction

What are potential disadvantages?

  • Increased regulation (compared to other forms of self insurance)
  • Unfavorable loss development
  • Cost (capital, frictional)