Captive Insurance 101
by Chris Sumnar, on 4/17/19 4:12 PM
What is a captive?
A captive is an insurance company that insures the risks of its owner, affiliates, or a group of companies. It issues policies, collects premiums, and pays claims. A captive’s ownership structure does not need to be the same as the company or companies it insures. The first captives were formed in 1920 and today over 76% of Fortune 500 companies own a captive insurance company.
Types of captives
While the structure of a captive can take several forms there are essentially two types of captives:
Traditional Captive – Risks include Workers’ Compensation, Auto, General & Professional Liability, & Property Micro-Captive – Uninsured or Underinsured Risks (see list below) with total premium limited to $1,200,000
Why form a captive?
Traditional Captive – Opportunity to capture underwriting profit (as much as 60% of premium) and investment income, lower operating costs, premiums based on your loss experience, insulation from market conditions, enhance loss prevention and claims management
Micro-Captive – Smooth cash flows by paying premiums into your captive for difficult to insure or uninsurable risks
Who is a good candidate?
Traditional Captive – Organizations spending at least $200,000 in liability, workers’ compensation, and auto premiums with superior loss history and a strong risk management focus
Micro-Captive – Annual revenues of at least $15 million, EBIT of $1.5 million, Solid cash flow
Why Vested Risk?
Our process focuses on the assessment and management of risk prior to making a decision to join a captive. Vested’s lead captive advisor has been a part of over 400 captive formations in the last 7 years and has relationships with over 125 captive managers.