The captive, an alternative solution to traditional insurance

The use of captives as an alternative to traditional insurance markets is a practice commonly used by European and North American companies. This solution is beginning to grow in the MENA region.

More than 65% of companies listed in “Fortune 500” ranking of major global groups have one.

Not all companies can benefit from the establishment of their own captive insurance society. A feasibility study is needed to identify the benefits of going down this path. The creation of a new financial structure of this type depends on:

• The volume of generated premiums

The costs of setting up such a stucture are significant. Covering these costs must be ensured by a critical mass of annual premiums.

• The loss ratio which must be positive

A recent loss experience is crucial. It not only estimates the earnings of the future insurance entity but also highlights the quality of the company's risk management. This loss ratio determines the level of self-retention.

• Risk exposure

A company with little diversity in its risk portfolio does not necessarily have an interest in setting up its own insurance company.

On the other hand, a company that holds many insurable assets, of different natures, well distributed throughout a country or the world has every interest in creating such a structure in view of the insurable matter, the diversity, the dilution of the exposure and the overall more balanced risk profile.

• A stable loss experience
• Commitments over a long period of time

The applicant company for the creation of such a structure must put in place quality management bodies to best ensure risk reduction at all levels.

This management is a long-term process that requires financial investments, particularly in terms of capital.

• The choice of the captive’s country of domicile

The choice of the country allows to benefit from a stable political and legal environment.

The risks insured by captives insurance companies

A captive insurance company usually covers the following risks:

• fire
• third party liability
• motor
• financial
• marine
• specialty
• construction
• bond
• trade credit and political

For the insured's staff, the benefits generated relate to life and non-life insurance such as:

• basic and supplementary life insurance
• long-term disability insurance
• workmen's compensation insurance
• accidental death insurance
• occupational accident insurance