The expertise of our captive insurance team are highly sought after as they assist clients to better manage their risk, to create solutions for hard to insure risk and to lower their total cost of insurable risk.

A captive is a licensed insurance company established to act as an insurer for its parent company and subsidiaries. Captives serve as a vehicle for organisations seeking a long-term, strategic approach to managing risk. As part of a comprehensive risk management program, a captive offers its owner greater control and improved governance over risk financing strategies.

Reduced insurance spend and retention of underwriting profits. Retaining risk in a captive that would otherwise be transferred to the insurance market can reduce premiums and prove to be more economical over time. This is particularly true of well performing risks, allowing underwriting profits that would normally be lost to be retained. Improved cash flow. Monies that would have been paid out in premiums can be retained within the group and are accessible by the organisation and generate investment income. Receive ceding commission. This is the fee paid by a reinsurance company to an insurance company to cover administration costs, underwriting and business acquisition expenses.

Captives come in all shapes and sizes but primarily fall into the following three categories: Single-parent captive, Cell captives, and Group captive. The optimal captive is one that best addresses an organisation’s financial, risk management and strategic objectives. For example, A single-parent, wholly owned captive is set up and operated by a single owner or company to insure its own risk and the risk of its subsidiaries. It is a wholly owned subsidiary of the insured and is typically utilised by companies that retain significant risk.

A large New Zealand-based company faced the necessity of adopting higher deductibles and lower insurance limits due to market capacity constraints for their risks. They established their own insurance company (captive) with minimal capitalisation required. The captive was designed to retain a ‘primary’ layer of risk above the deductible and to be reinsured above that point. The captive has already built sufficient surplus to look at retain a higher share in the upcoming renewal. The value of the captive to the client includes access to the global reinsurance market, allowing direct participation by reinsurers behind the captive rather than through a fronting insurer (e.g., NZI, QBE, Vero, etc.). This shift gives the business control and enables direct access to reinsurers, bypassing insurers who previously managed reinsurance purchases and earned related commissions. The captive purchases reinsurance, effectively eliminating frictional costs.

The domicile selection process is a crucial component of a captive feasibility process. Lockton manages captives and has established relationships in all the major domiciles. Key domiciles in the Asia Pacific region include New Zealand, the Cook Islands, and Singapore.