What is a captive insurance company?

A captive insurance company is a bona fide insurance company, generally established for providing property and casualty coverages for its sponsoring company.  Captive insurance is a broad term that is used to describe many different ways in which such coverages can be structured and utilized.

Using Captive Insurance Arrangements to Maximize Value

For decades, captive insurance has been used by large companies to reduce the premiums paid for the company's property and casualty insurance and reduce the amounts needed to fund self-insured risks associated with the company's tangible and intangible assets.  The group captive structure and its segregated cell variation can bring these cost savings to small and medium sized business at a far lower cost than establishing the single parent captive commonly used by large companies.

The group captive and captive cell structures provide an opportunity for cost saving opportunities that can be further enhanced by coupling the structure with income tax and succession planning techniques.


Captive Advantages

Advantages of Captive Insurance are:

  • Increased control of coverages and risk levels
  • Greater control over claims
  • Coverages tailored to meet the business' needs
  • Reduced operating costs
  • Improved cash flow
  • Increased coverage and capacity
  • Eliminate policy exclusions
  • Investment income to fund losses
  • Direct access to reinsurance markets
  • Funding and underwriting flexibility
  • Smaller, self-insured deductible
  • Additional negotiating leverage with underwriters
  • Incentives for loss control
  • Potential tax savings

Implementation steps:

  • Business N adopts captive
  • Zermatt Insurance Group, Inc. provides documentation
  • Business N executes documents
  • Series N applies to reinsurance carrier through Captive
  • Reinsurance Co. issues reinsurance carrier through Captive
  • Captive issues policies to Business N
  • Business N pays premiums to Series N
  • Series N pays reinsurance premiums trhough Captive
  • Series N invests balance of funds
  • Investments are utilized to pay claims and build surplus
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