Captive insurance — or self-insurance — involves the creation of a licensed and regulated insurance company domiciled in one of the 35 US states with supporting programs, or through traditional offshore domiciles such as Bermuda, the Cayman Islands and Guernsey. Technically, insurance is access to capital at a discounted rate. In the event of a claim, the claims loss is financed in part or whole by the paid premium, which generally covers the total insured value of the claim until the capital is no longer at a discounted rate. A captive is essentially a risk-financing vehicle where the insurance transaction and the financing of that risk within the captive work hand-in-hand.
Risk tolerance increases proportionately with balance sheet strength, so an early assessment to determine how robust the balance sheet is when factoring in external market movement can pay dividends longer term. By enabling the owner to transfer balance sheet risk, a captive equips companies with increased control over their insurance and (re)insurance program structure and connected spend.
This whitepaper takes a close look at the following:
- The mechanics of a captive insurance program, including access to capital, retentions and claims-loss funding
- Captive versus commercial market placement, and how they offset market and pricing fluctuations
- Risk modeling and actuarial modeling to assess captive insurance structuring