Captive insurance companies, generally, insure or reinsure the risks of parents and other related companies but also they can insure related business of the parent; for example a car dealer could provide vehicle warranty insurance or loan protection. Another example would be selling travel insurance by an airline that uses a major well known insurance company to provide a service to customers and then that insurer reinsures a certain level of risk to the airline’s captive., often using an onshore commercial insurer to cede the business to the captive. The advantages are generally as follows:
- Retention in the captive of underwriting profits
- Retention in the captive of investment income
- Better use of loss control procedures when losses are retained
- Better access to the reinsurance market for retrocessions
- Centralised control of worldwide risk management
- Provision of insurance that is otherwise not available or prohibitively expensive
There may be numerous other advantages for the formation of a captive depending on a corporation’s structure and risk profile. The captive industry continues to grow worldwide and there are now numerous jurisdictions offering facilities. Guernsey has for many years been the jurisdiction of choice for the establishment of captive insurance companies.
We are involved now in developing captive solutions and feasibility studies for captive insurance vehicles and have a partner who provides the process to license, form and seek regulatory approval for such companies in both Bermuda and Guernsey.