What is a Captive?
At its most basic, a captive insurance company is an insurance company licensed under specific insurance laws which are available in certain jurisdictions (including the Cayman Islands) and which has as its main purpose the insuring or financing of the risks of its owners, which may be a single shareholder or group of participant shareholders.
Captive insurance allows shareholders to self-insure for certain future losses, whilst improving their cash flow and managing the cost of insurance rather than using third party insurance providers.
Reasons for Forming a Captive
- To minimize costs by the elimination of a large percentage of traditional insurance company overhead.
- To retain profits that would otherwise have to be paid to commercial insurers in the form of premiums in excess of the amounts repaid to cover losses.
- To have freedom over investment into which the premiums of the captive may be made.
- To reduce risk by selecting only quality insureds known to each other (as in the case of some medical malpractice association captives).
- To insure risks which would otherwise be uninsurable or cost prohibitive and to design custom policies.
- Access to the re-insurance market.
- The reduction of Government regulations and restrictions by seeking out a favourable jurisdiction for the registration of the company.
- The reduction of taxes by domiciling the company in a low tax jurisdiction. Cash flow planning as the captive has the use and benefit of the premiums.
- Timing of premium can be determined to suit the parent’s cash flow requirements.
To find out more about captive insurance in the Cayman Islands and how IMS can assist you, please email us at firstname.lastname@example.org.