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What is a reinsurance captive?
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Oct 17, 2022 · A captive is a self-insurance vehicle that can help companies keep a lid on rising insurance costs. It can also plug gaps in any risk cover left by today’s difficult insurance market – where premiums and deductibles are rising and companies retain more risk on their balance sheet.
- What Is A Direct Writing Captive?
- What Is A Reinsurance Captive?
- What Is Reinsurance?
- Direct Reinsurance
- Captive Reinsurance
A direct writing insurer issues insurance policies to its insureds. A captive insurer operating as a direct insurer insures the risks of the group and purchases reinsurance on the commercial reinsurance market. This reinsurance is not designed to deal with high-frequency or low-severity loss occurrences. Reinsurance attachment points—that is, the l...
A reinsurance captive does not issue policies directly to insureds and typically operates on a nonadmitted basis. A reinsurance captive reinsures the risks insured by one or more frontingcompanies. The fronting company is a licensed, admitted insurer that issues insurance policies to the captive's parent company without the intention of assuming al...
Reinsurancecan informally be described as insurance purchased by an insurance company. But here's a more technical definition: reinsurance is a transaction in which one party, the "reinsurer," in consideration of a premium paid to it, agrees to indemnify another party, the "reinsured," for part or all of the liability assumed by the reinsured under...
Facultative Reinsurance
Facultative reinsurance is also called "per-risk" cover. The reinsurer underwrites each risk (insured exposure, peril, and hazard) separately and retains the right to decline any specific piece of business. This might mean, for a captive owner, that the reinsurer agrees to provide blanket property limits for all insured locations except one (perhaps on a floodplain or in an earthquake zone). Or the reinsurer could put a sublimit on the amount of reinsurance provided for a specific peril (perh...
Treaty Reinsurance
Treaty reinsurance is an automatic or "obligatory" contract—all risks insured within a defined underwriting class are ceded and assumed. The reinsurer does not underwrite each individual piece of business. Treaty reinsurance could be used in a group captive program where a reinsurer appoints a managing general agent (MGA) to underwrite the business on its behalf. The MGA signs an agreement with the insurer defining the underwriting guidelines. The captive issues policies to each insured, and...
Retrocession
A reinsurer may transfer some of the risks it has assumed to another reinsurer. This process is known as retrocession.
With a fronting arrangement, the captive acts as a reinsurer rather than a direct insurer. A commercial insurance company ("fronting company") is licensed in the state(s) where a risk from the captive is located. The insurance policy is issued on the fronting company's paper. Then, through contractual agreement ("fronting agreement"), the risk is t...
Jul 12, 2024 · A captive insurance company is a wholly-owned subsidiary that provides risk mitigation services for its parent company or related entities. The potential benefits of a captive insurance...
- Julia Kagan
Oct 2, 2024 · Reinsurance is like insurance for insurance companies. It’s a way for insurance companies to protect themselves by sharing some of the risks they take on with other insurance companies. In fact, many captive insurance companies primary risks are actually reinsured from other insurers. Here’s how it works:
Jul 1, 2021 · The captive is now acting as a reinsurance company. It will also likely purchase reinsurance itself. It behooves the owners to set up appropriate committees, such as underwriting, claims, investment, and audit.
Aug 25, 2023 · Reinsurance involves a captive insurer offloading a portion of its risks to a third-party reinsurer, sharing the risk and financial burden. By doing so, captives ensure that they have the necessary resources and capacity to address potential losses without jeopardizing their solvency.
A captive is an insurance or reinsurance company, established specifically to insure or reinsure the risks of its owner, or parent company. In some cases, captives are also used to insure the risks of third parties, similar to commercial insurers.
