Managing risk capital through 'Captive Insurance'

If your day-to-day affairs revolve around the world of business, perhaps you’ve been hearing a lot about an alternative strategy, a risk financing technique that not only got everyone curious but has also introduced another perspective in business asset protection in the form of what they have termed as, ‘captive insurance.’

So what is a captive insurance and what are the roles of this alternative insurer as a substitute risk financing provider?  In definition, a captive insurer is generally an insurance company that is exclusively owned and managed by its insureds—most of the time, by a parent company or a group of companies.

Captive insurance can be generally divided into two main groups and they are basically distinguished by who owns and operates them. ‘Sponsored captives’ for instance are entirely maintained by an outside party that is unrelated to the insured while a ‘pure captive’ is wholly and purely owned and controlled by its insured. The latter is the most common and its main goal is to provide risk-mitigation services to its insured and its policymakers. More importantly, the insureds earn and benefit from the captive insurer’s underwriting profits.

However, to enjoy these benefits, companies that purchase captive insurance are expected to invest through their own resources since it is a form of a corporate ‘self-insurance.’ In other words, the financial benefits that a parent company gets from creating an independent insurance service entity is equaled with the responsibility of answering to the personnel cost of running the company.

In addition, other issues in terms of compliance also have to be addressed. This is the main reason why it’s usually larger corporations that form captive insurance companies. In fact, the list includes several Fortune 500 companies from around the world.

Located in one of the world’s largest captive domiciles (Bermuda), LOM Financial has been serving the needs of captive managers, reinsurance companies, institutional, and private clients for over two decades. For inquiries, please call (441) 292-5000 or follow this LINK.