What is an example of a captive insurance company?

For example, British Petroleum wisely set up a captive insurance company (Jupiter Insurance Ltd.) to provide environmental insurance to its operating units, and the moneys from its captive were used to fund in substantial part the Gulf cleanup.

How many companies use captive insurance?

The type of entity forming a captive varies from a major multinational corporation—approximately 90% of Fortune 500 companies have captive subsidiaries—to nonprofit organizations.

How many captive insurance companies are there in the US?

Indeed, with close to 3,400 captives licensed in its states, the United States, by far, outranks Bermuda, which reported 711 captives in 2018 and the Cayman Islands with 703.

Are captive insurance companies legal?

Captive insurance is a legitimate tax structure for small-business owners. Premiums paid to a captive insurer can be tax deductible if the arrangement meets certain risk-distribution standards. Thus, the business gets a current year write-off even though losses may never occur.

What are the two major types of captive insurance companies?

Captive insurance companies can take a number of different forms. However, the most common types are single-parent captives and group captives. A single-parent captive, also known as a pure captive, is owned and controlled by one organization and formed as a subsidiary of that organization.

How do captives make money?

Earn investment income: Captives can earn investment income on their loss and unearned premium reserves. A guaranteed cost policy purchased from a commercial insurer would not provide this additional income to the insured.

Why do insurance companies use captives?

The Purpose of a Captive To be very clear, the purpose of an insurance company and, therefore, a captive is to pay losses (your own losses) and to afford you (the owner) more control over your risk and any losses that do occur. Put another way, captives are an alternative risk transfer mechanism used to finance risk.

How big is the captive insurance market?

Global captive premiums were estimated at $55 billion 2010, with U.S. corporations representing 50 percent to 60 percent of the volume. Alternative market mechanisms account for about 25 percent to 35 percent of the U.S. commercial market, A.M. Best reported in its “State of the Captive Insurance Market 2012″ webinar.

Who owns a captive insurance company?

The association captive is “pure,” meaning that it insures only the risks of its owners. The sponsoring association may contribute 100 percent of the required capital, but since the association is owned by its members, its members indirectly own and have voting control over the captive insurance company.

Why do companies use captive insurance?

What are the benefits of a captive insurance company?

The advantages of going captive are:

  • Coverage tailored to meet your needs.
  • Reduced operating costs.
  • Improved cash flow.
  • Increased coverage and capacity.
  • Investment income to fund losses.
  • Direct access to wholesale reinsurance markets.
  • Funding and underwriting flexibility.
  • Greater control over claims.

Is captive insurance a good idea?

For many businesses, captive insurance is a no-brainer. In the right situations, it can reduce costs, insulate against insurance premium hikes, boost revenue, provide broader coverage and more efficiently finance risk.