Captive counter-insurance
Definition
Captive counter-insurance (or an intra-group counter-insurance company) is a non-listed company which partially or completely re-insures already-insured risks incurred by a company/group from the financial-services, merchandising or industrial sector and already insured with a primary insurer.
Advantages
The primary advantage of intra-group counter-insurance compared to the classic insurance market is the reduction of costs for risk insurance – and better insurance coverage.
The insurance costs are reduced via the following mechanisms:
- The establishment of an intra-group re-insurance company enables the reduction of the share of fixed costs included in the premiums charged by leading insurance products
- The premium is calculated based on historic losses incurred by the policyholder, not based on the average losses of an entire group of policyholders
- an intra-group re-insurance company enables direct access to the re-insurance market, the premiums of which are determined at a higher level and dependent upon the simple quantification of the anticipated risk
The re-insurance company enables a form of risk insurance which is not available on the classic insurance market. A captive counter-insurance based in Luxemburg can therefore be the ideal solution for an international group of companies which aims to introduce a risk-insurance programme on the group level.
The most important distinguishing aspect of captive insurance is the actual insurance reserve to cover fluctuations in damage quotas. The fluctuation reserve shields the re-insurance company from high discrepancies in damages coverage payable (compared to the previous year).
