Captives put Surplus Capital to work
According to a new report “Single Parent Captive Benchmarking: Capital and Collateral”, firms with captive insurance companies are examining a full range of opportunities for putting surplus capital to work within their organizations. This report was released by Marsh at the 2010 Annual Conference of the Risk and Insurance Management Society, Inc.
The new report investigates how owners of captive insurance companies in different jurisdictions are tapping into surplus funds and continue to comply with local regulations governing the capitalization of their captives. It focuses on activities in the past year of more than 750 businesses owning captive insurance companies.
According to Marsh, regardless of geography, intercompany transactions are still the most common use of captive investment assets. This is because captive owners try to find efficient methods to return excess funds to the parent company.
The report finds that captives tend to be capitalized in excess of the statutory minimums regardless of the location they are domiciled. To meet these requirements, offshore captives tend to have higher premium-to-capital ratios than those domiciled onshore in the US or the EU.
Gemmell said that in the Cayman Islands a large number of captives operate with only the minimum capital of USD 120 000, which reflects that many of these captives have retrospectively rated insurance programs.