FAQs

What is a Captive?

Captive insurance, also called "alternative" insurance is essentially the insuring of one's own risk. The most recognised and formalised way of achieving this self insurance is by the ownership of a captive insurance company. This is typically a dedicated, wholly owned insurance company that insures (or reinsures) the risks of that parent company, sister companies, customers, suppliers or affiliates.

How big is the captive market?

The "alternative" insurance market is now estimated at 40% of the total insurance market. Worldwide there are over 5,000 captive insurance companies writing in excess of $50bn per annum in premium income.

Is a captive right for us?

Since the late 1970's many companies, association caledonian, and tax exempt organisations have recognised the benefits of insuring their own risks in a captive.The implementation of a successful captive program requires a commitment of time, capital and a corporate-wide philosophy of risk reduction and abatement.

What are the benefits of a owning a Captive Insurance Company?

CISL works with brokers, accountants, tax advisers and independent consultants to determine the most effective way for a captive to participate in the parent company's insurance program. Some of the benefits of this participation are as follows:

Reduction in Costs / Profit Center  

The typical insurance company has an expense ratio of 25%-30%. For a captive writing the same policies, the expense ratio is less than 5%, although if policy fronting and claims handling services are required from an onshore insurer, the cost base increases proportionately. In addition to the cost savings, underwriting profits that would otherwise have been earned by an external insurer, can now be earned by a subsidiary company.

Long Term Stability

Owning a captive insurance company, or participating in a SPC gives not only added flexibility in program design, but also creates long-term stability in both cover and costing. Captive premiums are calculated on a cost plus basis, and are not influenced by the cycles in the insurance market, which can be fickle in nature.

Availability of Cover  

When market covers are withdrawn by the conventional insurers, or when exclusion provisions are enforced, there is no reason why the captive should follow these changes. Policy wording and coverage can be tailor-made to suit the insured. 

Access to Reinsurance Markets

Reinsurance markets can often be less expensive, more flexible, and more innovative than the direct markets. Long terms deals are more popular with the reinsurance than the direct market.

Improved Risk Management

The financial performance of the captive arrangement, when consolidated with the parent company's numbers, may have a positive influence on the performance of Caledonian. Having a direct interest in an insurance vehicle may raise awareness of insurance issues and heighten risk management. Often risk control and risk reduction procedures will be employed to improve the health and safety practices are implemented with a view to reducing the long-term cost of risk.

Cash Flow Benefits

A captive will earn investment income on the premiums, which would not otherwise be available when paid to a direct insurer. For long-term business (i.e. employer's liability, environmental, motor third party etc.), this investment income can accumulate to an amount equal to, or greater than, the original premium. Typical captive investments are in cash deposits, company and government bonds, and equity investment funds.

Tax Deferral and Reduction

We do not purport to give tax advice and you should consult tax experts in your home jurisdiction for advice on tax issues.