A captive is a licensed insurer that may insure or reinsure the exposures and risks of its parents, affiliated parties, or chosen unrelated parties. Captives can be located onshore or offshore and are typically regulated under special captive legislation.

Captives participate in all risk areas. Liability risks, including general third-party risk, employers' liability, automobile liability, and health/medical coverage account for the majority of all lines of business written. Typical captive programs include the single parent captive, protected cell captives, special purpose vehicles, and group captives.

Potential Advantages of a Captive

• Reduced insurance costs resulting from the ability to manage the retentions and deductibles associated with traditional risk transfer programs.
• Protected cash flow, as reserves for unpaid claims and unearned premium can be held by the captive and invested.
• Source of additional revenue, as a captive can expand its book of business by offering insurance to third parties. Some captive clients offer third parties insurance for a profit center approach.
• Offers the flexibility to fund both traditional coverages, but also difficult-to-insure exposures such as environmental risks and employment practice liabilities.
• Direct access to the reinsurance markets.
• Rewards superior risk management practices.

Domicile Selection
Organizations use a number of criteria when deciding where to domicile their captives. A key domicile decision is driven by any of several business purposes that would dictate where the captive should be located. Examples of other considerations include:

• Sophistication of domicile regulation and infrastructure;
• Efficacy of regulatory body; and
• The convenience of the domicile location.

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