Comprehensive Capabilities

  The foundation of AWP Life Brokerage is the belief that firms are strengthened by the ability to work in tandem as a unified consortium.  Our specializations include insurance concepts and...


Industry Leader

  AWP has proven continual leadership in delivery of benefits solutions for companies of any size as well as we continue to be a leading enterprise in life insurance planning and...


Institutional Relationships

Institutional accounts are integral to our overall distribution plan.  We define institutions as banks, wirehouses, regional broker dealers, and CPA networks. AWP has acquired recognition as a player in the institutional...


Pioneering Captive Insurance

Introduction Despite the fact that the concept of “captive” traces its origins to the beginnings of formalized trade, many people believe captive insurance companies to be a relatively new phenomenon.  Formed...


Premium Financing

Many affluent clients are aware of the benefits that life insurance can provide.  However, clients often harbor concerns that a substantial income tax liability will result from liquidating low basis...


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Pioneering Captive Insurance

Introduction

Despite the fact that the concept of “captive” traces its origins to the beginnings of formalized trade, many people believe captive insurance companies to be a relatively new phenomenon.  Formed in the late 1800s, one of the original captives was designed to write more cost-effective fire insurance policies for New England textile manufacturers enduring increasing market rates.  However, the captive market exhibited slow growth, with only approximately 100 captives having been formed from the onset of their foundation to the 1950s.  More commonly known growth of captives began in the 1960s within the Bermuda market, and later the 1970s and 1980s saw tremendous growth of captives in response to a challenging insurance market and a period of difficulties obtaining product liability coverage.


Presently, roughly 5,000 captives exist with typical representation including commercial, economic, and tax advantages to their sponsors made possible through cost reductions they help create, ease for insurance risk management, and flexibility they generate for cash flows.  Additionally, they provide coverage for risks that is not available in the traditional insurance market at reasonable prices and, in certain cases, allow relevant groups direct access to reinsurance markets.


What is a Captive?

A captive insurance company is a closely held insurance company whose business is primarily supplied and controlled by its owners.  Captives are insurers distinctly owned by the insureds and organized for the key purpose of self-funding the owners’ risks.  Shareholders/insureds play an active role in decisions influencing the underwriting, operations, and investments of a captive insurer.


The ambiguity that characterizes captives undoubtedly arises in part from the broad range of insurance institutions organized under the heading of “captive insurers”.  A number of captives, for instance, are owned by a single parent and write business exclusively for that parent, while other captives may contrastingly be owned by and underwrite risks for an association or an industry group.  In other cases, captives can be owned by a party unrelated to the insured but involved by “renting” the captive’s surplus to a firm aspiring to instate a self-insurance program.  Services offered by a captive can also vary depending on the specific needs of the insureds.  Some captives engage in active underwriting through risk classification and pooling while others may simply serve as a conduit through which assumed risks are transferred to international reinsurance markets.


The advantages conferred by a captive insurer can be substantial.  Ownership of a captive affords parent companies control that can be useful via permitting tailoring of insurance products and underwriting standards to specific and individual circumstances of the insured, particularly in cases in which coverage may be otherwise unavailable or prohibitively expensive.  Ownership additionally permits the parent an unparalleled degree of control in determination of appropriate litigation and claims settlement strategies, allowing these to then necessarily reflect the needs of the parent rather than those solely of the indemnifying insurer.  In a myriad of other settings, the direct access to reinsurance markets afforded by a captive can offer a reduction in cost of laying off risks, and ownership of the captive allows the parent to reap the benefits of favorable loss experiences enjoyed by the captive.


Finally, the captive form of insurance boasts the potential to provide a tax benefit to the parent firm.  Contributions made to a self-insurance pool are not recognized by the IRS to be tax-deductible business expenses, although actual losses are deductible as they are paid.  Premium payments to an insurer, however, are permissible business expenses that may be leveraged as an offset to taxable corporate profits.