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A captive
is an autonomous and licensed subsidiary established to cover
part or all of the risks of its parent. It can be formed either
by commercial, industrial or financial organizations. Captives
can act as insurance or reinsurance companies; however the
latter is the most commonly used as it is less constraining
in terms of capital and regulatory requirements.
Main
types of captives:
- Single
owner captives, underwriting
only the parent-company's risks (but can be extended to
parent-company's customers). They are recommended for large
companies with high insurance expenses or for smaller companies
with high costs in one particular class of risk. This is
the most frequently used type of captive.
- Rent-a-captives,
underwriting risks from many different insureds but with
isolated compartments and ring-fenced economic assets. Their
main targets are smaller companies as the capital needs
and fees are lower. They can also be used as a temporary
accumulation fund prior to the establishment of the single-owner
captive. Although this type of captive structure is quite
widespread, it requires precautionary measures with regard
to corporate governance, transparency rules and bankruptcy
legislations.
- Association
captives, usually formed
by a group of insureds with a common risk. They are recommended
for groups of companies within the same industry which have
problems in finding cost-effective or adequate cover in
the traditional market for a specific risk. This structure
is however not in widespread use since it requires very
close risk management policies and strong convergence of
interests.
On
our website emphasis is placed on the most frequent structure:
the single owner reinsurance captive but you can contact
us for additional information regarding any other structure. |
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