Understanding the nuances of the captive industry can be challenging. Explore this glossary for a better understanding of the various insurance models, types of captive insurance, and captive management.
Following are a few common options companies can use to align their insurance coverage with their broader business strategy and appetite for risk assumption.
An insurance company that provides insurance to and is controlled by it's owners.
An insurance company owned and controlled by a group of entities, most commonly mid-size businesses, to collectively insure their own risks.
A risk-financing strategy in which a business retains a portion or all of its own risk(s) rather than paying premiums to a licensed insurer for a fully-insured policy, and assumes responsibility for claims handling and payment.
An insurance arrangement in which a company (i.e., the insured) pays a premium to transfer all its risk to an insurance carrier that agrees to pay covered claims up to a specified amount.
A blended approach where a company retains smaller, predictable losses, i.e., a portion of each loss up to the deductible limit, while the insurance company pays costs above the deductible limit. It is often attractive to companies seeking a cash flow option, since the insurance company typically pays all losses and then bills back the insured for its portion (i.e., within the deductible).
The following information provides insight into the different types of captives an organization can create or join.
An insurance company owned and controlled by multiple organizations to insure certain risks for the member companies. There are two important characteristics when it comes to the member-owned model used by the group captives we work with:
An insurance company owned by the organization (or organizations) that it insures. Rather than paying a conventional commercial insurance company, a captive owner chooses to retain certain risks at lower costs while still transferring others (often, catastrophic losses) to an insurer.
A captive owned by a third-party that allows companies to “rent” participation without ownership.
A member-owned insurance entity formed by businesses with similar liability exposures to insure commercial liability risks in the U.S.
A captive owned by an insurance agency to retain underwriting profit on behalf of the agency.
A group captive comprised of member-companies from diverse industries.
A group captive comprised of member-companies from the same industry.
Learn more about heterogeneous and homogeneous group captives
The following information provides insight into the service providers that help establish and maintain the member-owned group captives supported by Captive Resources.
The dedicated team of consultants that fulfill program management, risk control, claims services, finance, and meeting management responsibilities for the captive. Captive Resources serves as the captive consultant for all group captives we support.
Learn more about what we do at Captive Resources
Responsible for the day-to-day operations of the captive, including overseeing governance, regulatory reporting, cash management and accounting, audit, and tax coordination. Captive Resources’ sister company, Kensington Management Group, provides these services to many of the captives we work with.
An independent contractor that handles the day-to-day administration and processing of insurance claims, including negotiation and settlement.
The licensed insurance professionals who introduce and educate prospective member-companies about the mechanics of group captive insurance. Brokers assist with policy issuance coordination, billing and premium collection, insurance support services, loss/claim assistance, placement of coverages not provided by the captive, and annual coverage renewal.
Loss prevention consultants are hired as independent contractors by the captive or by individual member-companies. They periodically visit each member’s facilities to help achieve the captive’s loss prevention and safety standards.
As independent contractors, actuarial firms take loss data supplied by the captive member and compiled by the member’s broker and, after trending and developing this data, develop a “loss pick” for each member upon which the member’s final premium is based.
The following information pertains to the member-owned group captives supported by Captive Resources. Specific details may vary across programs.
The amount required for members to, collateralize the policy issuing/fronting carrier, and secure member-to-member obligations, usually in the form of letters of credit or cash collateral.
The licensed, admitted insurer used to issue an insurance policy(ies) on behalf of the captive. While risk is retained by the captive, the fronting carrier legally assumes the credit risk should the captive fail to indemnify the obligations imposed by the insurance policy(ies).
The state, territory, or country that licenses a captive insurance company, providing regulatory oversight. Many of the group captives advised by Captive Resources are domiciled in the Cayman Islands.
A finance modeling framework in which an independent actuary compiles data, evaluates trends, and develops a “loss pick” for each captive member. These loss picks determine each member’s final premium.
An equitable group captive-funding formula that incorporates risk-sharing among members for severity losses and ensures that members’ premiums reflect their risks and individual loss history. The A Fund provides for frequency losses (e.g., $0 to $100,000), while the B Fund provides for severity losses (e.g., $100,001 to $500,000).
Learn more about the A/B Fund Formula
An annual, in-depth review of risk control policies and procedures compared to industry best practices; used to identify member-company areas of strength and opportunities to improve.