WHAT IS A CAPTIVE INSURANCE COMPANY?
A captive insurance company (or “captive”) is a special-purpose insurance company formed primarily to underwrite the risks of its parent company or affiliated groups. It has characteristics similar to a traditional, commercial insurance company:
? It is a licensed insurance company.
? It sets premiums and issues policies for the risks it chooses to insure.
? It collects premiums.
? It pays out claims.
The biggest difference between a captive insurance company and a commercial insurance company is that a captive cannot sell insurance to the public. It can only insure the risks of its parent organization or related entities owned by the group. Another difference is that the capital and regulations governing captive insurance companies are typically less onerous than those governing traditional commercial carriers. At its most basic level, a captive works like this:
1. A corporation with one or more subsidiaries sets up a captive insurance company as a wholly owned subsidiary.
2. The captive is capitalized and domiciled in a jurisdiction with captive-enabling legislation, which allows the captive to operate as a licensed insurance company.
3. The parent company identifies the risks of its subsidiaries that it wants the captive to insure.
4. The captive evaluates the risks, issues policies, sets premium levels and accepts premium payments.
5. The subsidiaries pay the premium payments and the captive, like any insurance company, invests the premium payments for future claim payouts.
By Ayman Alajmi - ACII
risk and insurance unit at Qatar General Electricity & Water Corporation (Kahramaa)
4 年insurance risk department could make the same role with much less cost and more effective at risk solutions
Compliance | Corporate Governance | Corporate Management | Financial Crime and Sanctions Compliance | FATCA & CRS Compliance | Risk Management | Data Protection | Treasury | Capital Market | Asset Management
4 年Interesting .. what are the main factors to go for captive instead of commercial insurance? Is it cheaper?
Experienced in Operations, Project Transition, Business Continuity & Risk Management (open for new opportunities)
4 年Well explained Mr.Ayman Al-Ajmi. Thank you for sharing...
Ministry of Investment
4 年Thanks dear Ayman for kind invitation and honored to be part of this distinguished professionals.