Bermuda Captive Insurance
In 1960s, a businessman named Frederic Reiss first introduced the concept of a captive insurer - A insurance company created and owned by a non-insurance parent company for the purpose of providing insurance coverage to the parent company's exposures. It is called captive, since the primary purpose of the insurance company is to finance the exposures of its own parent company. However, the captive insurance companies can also provide coverage to other outside companies in order to keep their business profitable.
Frederic Reiss, who was a former fire protection engineer from Ohio state, explored and finally came to the conclusion that Bermuda was the ideal place to implement his concept of Captive Insurance. Gradually the island became a pioneer in Captive Insurance sector.
While there are many jurisdictions in the world where captive insurance business operate from, Bermuda remains as the world leader. In fact till the 1980s, Captive was the main international insurance business operated from Bermuda before the sector got widened to accommodate other insurance types and business models.
There are a number of variations in captive insurance businesses that have been operating in Bermuda.
Group Captives were created in Bermuda to help the smaller companies to pool their risks together and get the benefits of wider insurance coverage on their exposures. The largest Group Captive Insurance company operating from Bermuda was the Oil Insurance Limited (OIL). This was formed by a group of petroleum companies in 1971 as they faced increasing difficulties in the property insurance market.
The rent-a-captive is another variation that has been created for the smaller companies to leverage and manage their own risks. This is still widely popular and used by many types of companies and association groups.
Within the Rent-a-captive, there are many innovative uses. One of the recent developments in this area is the case where the agents or the underwriting management companies participate in the profits of the business.
Many small companies allow diverse activities to operate under a single umbrella, while keeping their individual activities separate.
UPDATE March 2012: Business Insurance magazine reported that in 2011 Bermuda has retained its global leadership position in Captive domicile followed by Cayman Islands. Guernsey is however the leader in Europe. Bermuda Monetary Authority had reported that at the end of 2011, Bermuda had 862 captives. This was an increase by 17% over 2010. The captive premiums amount to about $33 Billion and totaal captive assets about $100 Billion.
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