Benefits of Forming a Captive
Risk Selection and Mitigation
Captives allow companies to structure the type and amount of risk you wish to retain. You may include risks that are currently uninsurable or insurable only at prohibitive costs. Risks that you do not retain for your own account can be covered in the reinsurance market.
Improved Cash Flow
By establishing a captive insurance program, you maintain control of your premium payments and direct the management of those funds according to your own investment strategy. This enables you to maximize the yield on the portfolio commensurate with risk and to structure the maturities to meet your cash flow requirements.
Protection Against Price Fluctuations
Captive insurance may stabilize your risk management costs. Market factors beyond your insured risks lead to volatile insurance pricing. When you insure through a captive, premiums are determined by your company’s own loss experience rather than the experience of a peer group, whose loss ratios may be much higher.
Coordinated Risk Management
Industry associations or captive subsidiaries without a multi-corporate structure are able to band together for group funding. Consolidation of coverage and centralization of administrative support are cost-effective strategies in an increasingly competitive world.