Define: Captive Insurer

A captive insurer is an insurance company that is owned and controlled by the insured organisation(s) it insures. It is established to provide coverage primarily for the risks of its parent company or companies.

Companies may choose to establish a captive insurer to have more control over their insurance program, potentially reduce costs, access coverage that may not be available in the traditional insurance market, and retain underwriting profits.

Yes, establishing a captive insurer involves complying with various legal requirements, such as obtaining the necessary licenses and meeting the regulatory standards set by the jurisdiction in which the captive is formed.

While most companies can establish a captive insurer, it may not be suitable for every organisation. Factors such as the size, financial stability, and risk profile of the company are considered when determining the feasibility of establishing a captive insurer.

A captive insurer can cover a wide range of risks, including property damage, liability, professional indemnity, employee benefits, and even more specialized risks specific to the parent company’s industry.

Yes, in some cases, a captive insurer can provide coverage to third parties. This is known as a “rent-a-captive” arrangement, where the captive insurer offers its services to other organisations outside of its parent company.

Captive insurers are regulated by the jurisdiction in which they are formed. The regulatory framework typically includes requirements for capitalization, solvency, reporting, and compliance with applicable insurance laws.

There can be tax advantages to establishing a captive insurer, such as potential tax deductions for insurance premiums paid to the captive and the ability to accumulate underwriting profits on a tax-deferred basis. However, tax implications vary depending on the jurisdiction and should be carefully considered.

Yes, a captive insurer can be an effective risk management tool. By having more control over their insurance program, companies can tailor coverage to their specific needs, potentially reducing gaps in coverage and better managing their overall risk exposure.

Establishing a captive insurer requires significant upfront costs, ongoing administrative and regulatory compliance, and the need for specialized expertise. Additionally, the captive may be exposed to risks associated with its parent company, such as financial instability or changes in the regulatory environment.