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)