Captive insurance companies

A captive insurance company is a genuine insurance or reinsurance company, owned either by a non-insurance company or a group of entities wishing to insure or reinsure their own risks and those of their affiliates

Captives operate on two main bases;

Direct-writing captives –

Direct–writing captives are captive insurers which underwrite the risks of the parent company, without the use of a fronting insurance company. The fundamental advantage of this form of captive lies in the fact that the entire underwriting process takes place in house, thus eliminating the expenses of the fronting company. In addition, the use of a direct writing captive structure facilitates access to the wholesale reinsurance market and thus provides a highly cost effective risk transfer solution to corporate clients.

Reinsurance captives –

This is the most prevalent form of captive in Europe. This type of captive underwrite risks through a local insurer, termed a fronting insurer, which is generally a conventional external insurer. The parent and/or its subsidiaries pay premiums to the fronting company in exchange for cover which is provided on the understanding that a large proportion of the total risk is reinsured to the captive. One of the primary reasons for operating a reinsurance captive, rather than a direct writing captive, is that in some territories the law requires that certain types of coverage can only be purchased from insurers licensed within that territory