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Captive Insurance Companies have long been used by many prominent companies to manage their insurance risks. In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company and or other group companies.

They are essentially a form of self-insurance whereby the insurer is owned wholly by the insured and they operate like any commercial insurer by issuing policies, collecting premiums and paying claims.

However as captives do not offer insurance to the public they avoids the cost of advertising and marketing which a commercial insurer has, and all profits are retained within the group.

Typically, a captive has none or very few employees and all of the usual ‘insurance company’ functions are outsourced to third parties such as managers, underwriters, and actuaries all of whom are regulated, as indeed is the captive insurance company.

The captive concept has existed for centuries but it has only gained widespread acceptance in the last few decades. Currently there are more than 6,000 captives operating in nearly 60 countries worldwide with a premium income not short of US$100bn.

Traditionally the most popular domiciles for captives to be established and managed have been in offshore centres such as Bermuda, the Cayman Islands, Barbados, the Isle of Man and Guernsey. This has less to do with tax saving (in fact often there is no tax advantage at all) and more to do with those countries offering a more relaxed regulatory regime in recognition of the non commercial basis of the business. However in recent years several US states and countries such as Ireland and Luxembourg have entered the market and together write almost 50% of all business.

In principle, virtually any risk can be covered through a captive structure including commercial, property, personal accident, marine, crime and professional indemnity. As a regulated insurer captives also have access to the wholesale “re-insurance” market and so can spread their risk.

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