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Articles

CAPTIVE INSURANCE COMPANIES: A GROWING ALTERNATIVE METHOD OF RISK FINANCING

Journal of Payment Systems Law

  • Published On: September 5, 2007

Growing numbers of publicly traded companies, large and mid-sized privately held corporations, tax exempt organizations, and other business entities are relying on captive
insurance companies to provide insurance and lower the costs associated with paying claims owed to third parties. Captives insure risks like those covered by general insurers, plus provide specialized coverage for, e.g., terrorism risks, all tailored to the risk/potential loss profile of an affiliated group of insureds. In essence, a captive
insurance company is an entity formed in a particular jurisdiction or domicile primarily to insure or reinsure the risks of the corporate parent and/or one or more other related entities, or even unrelated entities. So long as all of a captive’s actions are deemed prudent and within the scope of the law and usual insurance company practice, it can write almost any type of insurance coverage for related or unrelated entities and charge a premium that the company and its regulators find acceptable.

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