A Captive Insurance company is the most common used vehicle to self insure risks emanating from either its parent company and/or its parent company’s customers, employees or other related parties, where a formal structure is needed for regulatory, accounting, contractual or other purposes.
Other commonly used risk self funding mechanisms include risk pooling arrangements, rent-a-captive accounts and managed funds.
Typically captives and other self funding mechanisms are established by businesses with significant insurance premium expenses, to minimise the cost of risk financing, by reducing the transfer of risk to the insurance market in the “dollar swapping” layer of risk and thereby retaining profits that would otherwise be passed onto the insurance market.
Premiums paid to a captive insurance company are usually deductible as a business expense for tax purposes whereas sums set aside in an informal self insurance fund are not.
Other key benefits of forming a captive insurance company include:
– The ability to retain more risk as the captive matures, to provide significant cost benefits in a hardening insurance market.
– The ability access wholesale reinsurance markets directly.
– The ability to issue insurance policies for risks that may be uninsurable in the conventional insurance market.
Wallace McLean offers consulting advice on captive feasibility, domicile selection, formation, and strategic review health checks of existing captives including expansion, consolidation or liquidation options and processes.
Wallace McLean offers truly independent advice on captives as we will not act as insurance brokers and captive consultants for the same client which is a conflict of interest. Brokers that offer their insurance broking clients advice on the use of captives can be adversely influenced by any potential reduction in income from insurance placements.