International Business Lawyers
Captive FAQs
Captive vs. Traditional?
Commercial insurance companies sell insurance to the general public and are licensed in all jurisdictions in which they do business. By contrast, captive insurance companies insure only their owners, who are sophisticated entities with the ability to manage and retain their own risk. Consequently, the degree of regulatory oversight required for captives is different than that which is required for commercial insurers. The captive is licensed in only one jurisdiction, and operates under the captive insurance law of that domicile.
Why Form a Captive?
One of the chief functions of a captive is to facilitate the efficient financing of risk within an organization. In addition, captives form part of the overall financial planning structure for a corporation; act as a shield against upswings and downturns in the commercial market; serve as a direct insurance company that issues policies to subsidiaries in a group or, can serve as a reinsurance company that assumes risks behind commercial insurers.
Specific captive benefits include unbundled service support; improved cash flow and investment return; reduced overall cost of coverage; access to the reinsurance market; underwriting profit; ability to provide coverage that is unavailable or unaffordable in the traditional marketplace; and coordination of global exposure.
Which are the benefits of Rent-a-Captive?
Rent-a-Captives offer the benefits of a captive insurance company without the capitalization requirements, administrative costs and legal ramifications associated with establishing and operating an insurance subsidiary, and can return underwriting profits and investment income to a participant.
What is an Intermediary Clause?
It is a provision in reinsurance agreements, which identifies the intermediary negotiating the agreement. Most intermediary clauses shift all credit risk to reinsurers by providing that: the cedant’s payments to the intermediary are deemed payments to the reinsurer; and the reinsurer’s payments to the intermediary are not payments to the cedant until actually received by the cedant.
What means “Premium”?
There are a variety of Premiums:
Premium (Written/Unearned/Earned) – Written premium is premium registered to an insurer or reinsurer at the time a policy is issued and paid for. Premium for a future exposure period is said to be unearned premium for an individual policy, written premium minus unearned premium equals earned premium.
Premium, Pure – The portion of the premium calculated to enable the insurer to pay losses and, allocated claim expenses or the premium arrived at by dividing losses by exposure and in which no loading has been added for commission, taxes, and expenses.
Premium, Deposit – When the terms of a policy provide that the final earned premium be determined at some time after the policy itself has been written, companies may require tentative or deposit premiums at the beginning which are readjusted when the actual earned charge has been later determined.
What is a ceding company?
The Ceding Company is the original or primary insurer; the insurance company that transfers its risk to a reinsurer. The ceding commission is the amount paid by a reinsurer to the ceding company to cover the ceding company’s acquisition and other expenses. The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits – sometimes expressed as a percentage of the gross reinsurance premium.
Which are the captive insurance domicilies?
You can find a list of jurisdictions, with their websites, here:
- Alabama – Alabama Department of Insurance
- Arizona – Arizona Department of Insurance
- Arkansas – Arkansas Insurance Department
- Australia – Australian Prudential Regulation Authority
- Bahamas – The Registrar of Insurance
- Barbados – Office of the Supervisor of Insurance
- Bermuda – Registrar of Companies
- British Columbia – Deputy Superintendent of Financial Institutions
- British Virgin Islands – Director of Financial Services
- Cayman Islands – Cayman Islands Monetary Authority
- Colorado – Commissioner of Insurance
- Curacao (Netherlands) – Insurance Supervision Dept.
- Delaware – Delaware Department of Insurance Commissioner & Department of Insurance
- Denmark – The Danish Financial Supervisory Authority
- District of Columbia – Department of Insurance, Securities and Banking
- Dublin – Irish Financial Services Regulatory Authority
- Florida – Department of Financial Services
- Georgia – Georgia Insurance and Safety Fire Commissioner
- Gibraltar – Financial Services Commission
- Guam – Dept. of Revenue & Taxation
- Guernsey – Financial Services Commission
- Hawaii – Department of Commerce & Consumer Affairs
- Hong Kong – Office of Commissioner of Insurance
- Illinois – Department of Financial and Professional Regulation
- Ireland – Ireland Captive Insurance & Reinsurance Management
- Isle of Man – Insurance and Pensions Authority
- Jersey – Jersey Financial Services Commission
- Kansas – State of Kansas Department of Insurance
- Kentucky – Kentucky Office of Insurance
- Labuan – Labuan Offshore Financial Services Authority
- Liechtenstein – Office of National Economy
- London – Lloyd’s of London
- Luxembourg – Commissariat aux Assurances
- Maine – Main Department of Professional & Financial Services
- Malta – Malta Financial Services Authority
- Mauritius (South Africa) – Financial Services Commission
- Montana – Montana State Auditor’s Office
- Nevada – Nevada Captive Insurance Association
- New York – New York Captive Insurance Solutions
- New Zealand – Ministry of Economic Development
- Panama – Superintendent of Insurance and Reinsurance
- Rhode Island – State of Rhode Island Department of Business Regulation
- St. Lucia – Ministry of Finance
- Singapore – Monetary Authority
- South Carolina – South Carolina Department of Insurance
- South Dakota – Division of Insurance
- Sweden – Swedish Financial Supervisory Authority
- Switzerland – Federal Office of Private Insurance
- Tennessee – Department of Commerce & Insurance
- Turks & Caicos Islands – Financial Services Commission
- U.S. Virgin Islands – Division of Banking & Insurance
- Utah – Utah Insurance Department
- Vanuatu – Ministry of Finance
- Vermont – Dept. of Banking, Insurance, Securities & Health Care Administration
- Virginia – Virginia State Corporation Commission
- West Virginia – West Virginia Offices of the Insurance Commissioner