In a world of corporate risk, ARM Managing Director Charles Scott looks at
the benefits of insuring against parent liabilities.
Some of the earliest methods of transferring or distributing
risk in a monetary economy were practiced by Chinese traders who,
when making a treacherous river crossing, would distribute their
wares across many vessels to limit the loss due to any single
vessel's capsizing.
In the millennia since, the methods used to transfer or
distribute risk have become more numerous, diverse and
sophisticated. The latest means of risk distribution is far more
versatile than an extra vessel: the captive insurance company.
What is a captive?
A captive, in its purest form, is a company set up by its owners
primarily to insure the risks of its parent. When an enterprise has
a significant insurance spend and its claims are generally less
than its premiums, it should consider setting up a captive.
