Kensington Management Group Ltd.

Captives are defined as independently owned and operated insurance companies that provide insurance to, and are controlled by, their owners.  In simple terms, a captive insurance company insures (or reinsures) its owner’s specific risks. It generally reduces the cost of insurance and can return underwriting profits and investment returns in the form of dividends. Owners of captive insurance companies can control their insurance destiny and are no longer subject to the unpredictability of conventional insurance.

Most captives are licensed in offshore domiciles to take advantage of the more business-focused, yet still very effective, regulatory environments, as well as flexibility in regards to coverage and capitalization.

Captive Advantages

• Stability of insurance costs
• Control of costs
• Ownership
• Improved cash flow
• Improved risk management culture
• Better availability of coverage, or coverage customization
• Asset protection,
• New profit center
• Estate planning

In short, to “Take control of their Insurance Destiny” and for this reason, more and more organizations are evaluating captive insurance.

Structures

Initially, captive insurance companies were formed for the benefit of either a parent company or professional association, with the parent or association’s own risks being insured. Over time, the concept has broadened and evolved, with many forms of captive insurance companies now available.

The main types are:

• Single Parent (“Pure” Captive)
  • An insurance or reinsurance company which is a wholly owned subsidiary, formed primarily to insure the risks of its non-insurance parent or affiliates.
     
• Association Captive
  • An insurance or reinsurance company owned or sponsored by a trade, industry or service group for the benefit of its members.
     
• Group Captive
  • An insurance or reinsurance company jointly owned by a number of typically unrelated companies, created to provide a vehicle to meet a common insurance need.
     
• Segregated Portfolio Company (“SPC”)
  • A single legal entity divided into an unlimited number of cells, whose assets and liabilities are legally separated from each other. Popular uses of the SPC structure are rent-a-captives and life insurance.

How to form a Captive

To form a captive insurance company in the Cayman Islands is, in most cases a relatively straightforward and non-cost prohibitive process, which can be accomplished in a timely manner. A detailed license application is prepared in conjunction with the Insurance Manager, with the application including a detailed business plan, as well as financial and actuarial projections. The Cayman Islands Monetary Authority (CIMA) require background information on shareholders and directors to ensure they meet the required ‘fit and proper’ criteria.