CAPTIVE INSURANCE
Captive Insurance 101 : What Are Captive Insurance Companies ?
A captive insurance company refers to a structured and effective means of self-insurance that insures the owners ’ and shareholders ’ retained business risks . A captive insurance company is a legally recognized and approved insurance firm that operates under the supervision of the insurance department of its state of domicile ..
Captive insurance companies are owner controlled . The owners , with the help of a captive manager and other relevant professionals , are responsible for the management of the insurance company .
TRADITIONAL INSURANCE COMPANIES VS . CAPTIVE INSURANCE COMPANIES
Both traditional and captive insurance companies provide insurance coverage to the owner . However , there are clear differences to be aware of .
TRADITIONAL INSURANCE COMPANIES
Traditional insurers are authorized by state insurance departments to sell preapproved insurance plans to the public . They are supervised and controlled by the state insurance departments where they are authorized to offer insurance to the public . Shareholders or policyholders own and control traditional insurance companies .
Insurers risk their own capital , seek reinsurance to protect it from significant losses , and keep the underwriting gain . In return for the insurer ’ s promise to pay a covered loss , the insured pays a premium and may retain some of the risk through a deductible .
CAPTIVE INSURANCE COMPANIES
Captive insurance companies are legal insurance entities and are an accepted form of self-insurance . They are owned and controlled by their owners . However , they are supervised and regulated by their state insurance department .
Captive insurance companies are utilized by companies or individuals to supplement or replace standard commercial insurance . While assuming an acceptable level of risk , the owners of the captive insurance company are able to customize their risk management program . The insurance coverage is tailored to the risk management requirements of the owners , protects the insured business from catastrophic loss and secures the economic benefit of good results for the owners .
WHAT IS A SIMPLE EXPLANATION OF HOW CAPTIVE INSURANCE WORKS ?
The owner ( also called the entity ), in collaboration with AgriCap establishes a captive insurance program . Working together , the owner and AgriCap create an insurance policy to address the risks and risk management needs of the owner . AgriCap Assurance writes , rates and secures reinsurance for the insurance policy . A portion of the reinsurance is provided by the owner ’ s captive insurance company .
Part of the premiums paid to AgriCap Assurance are paid to the owner ’ s captive insurance company as reinsurance premium . If there are covered losses under the AgriCap Assurance policy , the captive insurance company pays its share under the terms of its agreement with AgriCap Assurance .
If there is no covered loss under the AgriCap Assurance policy , the reinsurance premiums ( net of expenses ) paid to the captive are kept by the captive as underwriting profit . The profits can be held to supplement the claim paying balance sheet strength of the captive or may ultimately be distributed to the owners as dividends .”
WHAT ARE SPONSORED CAPTIVE INSURANCE COMPANIES ?
AgriCap owns and works with AgriCap Assurance Company , a Sponsored Captive Insurance Company .
A sponsored captive insurance company , or SCIC , operating protected cells is considered a single legal entity whose operations consist of two parts , namely :
• a noncellular component made up of a “ core ,” and
• an infinite number of segregated components or “ cells ”/“ protected cell .”
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