An insurance company subsidiary designed to cover the risk of its parent organization(s). Single owner captives are owned by one company, whereas association captives (also known as “group or “industry” captives) are owned by and cover the risk of multiple organizations. Given capital and operating expenses requirements, they are generally of interest only when applicable premiums exceed $2 million.
Typically, captives retain substantial portions of each loss and then purchase reinsurance above these levels. Captives provide an alternative funding mechanism when coverage breadth or capacity in traditional insurance markets does not meet the insureds needs. They can also provide cost savings, cash flow benefits, and specialized loss prevention and claims services not otherwise available. A captive insurance company’s insureds have direct involvement and influence over the company’s major operations, including underwriting, claims management policy, and investment. Bermuda is the world’s foremost domicile for captive insurers.
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