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Interested in a captive, but not quite ready? There's a solution for that

Economists predict a hardening insurance market with less capacity and higher premiums. Amidst these difficult conditions, risk managers are looking to diversify their risk transfer options, often exploring index-based coverage, fronting options or captive insurance. A captive – an in-house insurance entity set up by the company to help finance and insure its own risk – calls for a complicated regulatory, legal and financial process that not every organization is prepared to take on.

If you're seriously considering setting up a captive, the following criteria could help you determine if you're ready:

  • Your expected loss is lower than the premium set by your insurer implies
  • In the current market conditions, there's limited capacity and premiums are too high
  • You're looking to purchase reinsurance or access the wholesale risk transfer market

If any or all of these statements apply to your business, let's talk captive solutions. However, if you're also concerned about the cost and the complexity of setting up a captive, a Virtual Captive might be a better alternative.

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Let's explore some benefits of a Virtual Captive:

1) No set-up expenses

A traditional captive can be costly. A Virtual Captive keeps the mechanics of a traditional captive with one major difference: the insurer handles the set-up and administration of the supporting balance sheet – virtually taking it off yours.

2) No management cost

Given that, as an insurer, we're set up to manage risk transfer products and services, we can easily take on the complexity of the administrative process, including navigating any regulatory requirements. This means you can tap into our full spectrum of services as part of your virtual captive agreement, for a lot less than setting up a similar in-house infrastructure from scratch.

3) Performs as a captive

A Virtual Captive covers the same risks a traditional captive, but instead of having a legal entity on your balance sheet, it is structured as a multi-year agreement between you, the client, and us, the insurer. The premium for the duration of the agreement is based on the expected losses – the risk that you agree to finance – as well as the cost of administration and using our balance sheet.

In the event of a no or low loss scenario, you would receive a low claims bonus at the end of the agreement period. Likewise, if the losses exceed a predefined threshold, you may have additional premiums due. This payment structure is similar to the dividend payment of a captive to its parent, and the call for additional capital depends on the underwriting result of the captive.

Does a Virtual Captive cover absolutely everything?

Not quite. Although the risk is to a large part self-financed, our risk appetite and the volatility of certain markets still play a role. However, flexibility is higher than in most traditional insurance programs.

Most importantly, if you are looking for a hard market solution that is simpler to set up, simpler to exit, and comes with an easier to navigate regulatory and reporting requirements than its traditional counterpart, a virtual captive is worth looking into.

To learn more, contact us today.


​Virtual Captive