Captive Insurance and the Perils of Parenthood

Originally published in September 2003

In law, a captive insurer is an insurance company like any other. A statement of the obvious, perhaps, but nonetheless a technicality that many in the industry have been known to lose sight of from time to time.

Typically, a captive insurer will enter into two contractual insurance relationships, that is to say the inwards insurance, either directly from the parent or from a fronting insurer, and its outwards reinsurance. Even those captives that have been adequately capitalised to bear a large proportion of their own risk will almost certainly need recourse to XL or stop loss reinsurance, in order to preserve the integrity of the security provided to the parent or the fronting insurer.