A captive is an insurance company of one or several industrial or trading companies, allowing these companies to insure themselves. Captives are a proven tool in comprehensive risk management and risk self-financing. Risks that would normally be uninsurable otherwise or insufficient insurance cover in terms of premium, limits or conditions lead to the decision to set-up a captive. Currently, there are more than 5'000 captives worldwide, many in typical tax havens such as Guernsey, Bermuda, Cayman, Barbados, Luxembourg, and Ireland. Switzerland and Liechtenstein are also attractive locations for captives. Tax considerations are not the only factor; geographical closeness, political and legal environment, currency and interest stability, accounting rules, investment regulations, solvency requirements and, last but not least, the acceptance by the own tax authorities all play a role in choosing a location. By incorporating a self-owned insurance company, the insured entities participate directly in their loss experience.
Captives are especially suitable for entities and associations that fulfill the following prerequisites
- Good loss history, good risk management
- Reasonable retentions to avoid frequency claims in the captive
- Uninsurable risks that would be leveled through self-insurance
- Annual premium volume of at least EUR 350'000 for the captive
Advantages of Captive
- Positive selection through the self-responsibility of the insured parties
- Independence from the traditional insurance markets
- Access to the international reinsurance markets via the captive
- Investment/reinvestment of the captive's premiums and profits
- Coverage for risks which traditionally have not solutions (i.e., self-insurance, enlarged covers)
- Most premiums of self-financing solutions are tax deductible
- Flexibility regarding reserve build-up and dividend policy