EXPLAINED: Captives and understanding captives

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In an increasingly dynamic, constantly evolving and volatile marketplace and risk environment, the need to manage risk is critical.

The hardening global insurance market that began in 2019 has brought the topic of captives back to the forefront, and while their uses continue to evolve, the fundamentals of good captive practice remain much the same.

A captive insurance company is a risk financing mechanism in the form of an insurance or reinsurance vehicle, which is typically owned by a business. Through the provision of insurance products, the captive assists the business in the management of its risks. The captive insurance company has become an increasingly prominent risk control mechanism in the medium to long-term strategic planning of organisations ranging from large multinationals to medium-sized enterprises, spanning virtually every industry sector and international territory. Fuelled in part by an expanding number of jurisdictions authorising captives, there are now around 6,000 active captives globally.

This guide will take you through the life cycle of a captive from initial concept through to its benefits and uses, and finally to exit strategies. It is intended to be used by Airmic members starting out on their career in the profession, or by those who may wish to share knowledge with their business colleagues in areas such as procurement, finance, human resources and internal audit.

The following topics will be covered:

• What is a captive?

• What are the most popular locations and industry sectors for captive?

• What are the different types of captives?

• Why do organisations create captives?

• Setting up a captive

• Captive management and governance

• Developments in the use of captives and emerging trends

This is by no means a definitive guide; however, we hope it will go some way to answering these questions and to helping you understand the world of captives and how they may work for your organisation.
nding of the world of captives and how they may work for your organisation.