For larger risks and multinational companies a captive can serve as an alternative to traditional pay away insurance and can create massive savings via this form of “self insurance”.
Multinationals can also use the captive as a transfer pricing mechanism across international trade borders.
SCM has experience setting up, structuring and managing Captives locally and offshore.
Captive insurers are a cost effective manner of managing the insurance risk of an enterprise especially in circumstances where the enterprise wishes to adopt a certain limit of self insurance. In 2003 captives were estimated to account for approximately 10% of the world’s commercial insurance premiums.
A captive insurance company is, in its simplest and purest form, an insurance company that only insures ‘all or part of the risks of its parent. This definition is, however, rather narrow and fails to reflect the way in which captives have developed over the years.
The greatest stimulus to the development of captives has been the expense or lack of availability of certain types of insurance cover in the commercial market. Other considerations do apply, and these have become so important in the minds of risk managers and finance directors that, even when commercial premium rates have been extraordinarily low, the interest in captives has been greater than ever. Evidence of this interest is provided not only by the number of captives being formed but also by the increasing number of domiciles available for their incorporation
Captive insurers operate jurisdictions that have low bureaucratic efficient public administrations systems. These jurisdictions tend to have low tax rates, legislation that facilitates international arbitration access to specialist insurance markets with high speed telecommunications facilities.