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| Direct And Reinsurance Captives |
Reinsurance captive
Reinsurance captive: In most cases, where a captive reinsurer
is used, the risk must also be underwritten through a fronting
company, which is generally a conventional, external commercial
general insurer. The parent, or subsidiaries of the parent pay
premiums to the fronting company, in exchange for cover, which
is provided on the understanding that a large proportion of
the total risk is reinsured with the captive reinsurer. Please
see the Captive reinsurance flow diagram.
Direct-writing captive
A direct-writing captive is a captive insurer which actually
underwrites the risks of the parent company without the need
to provide this cover through a third party fronting company.
Please see the Direct Captive Insurance flow diagram. The fundamental
advantage of this form of captive insurer lies in the fact the
entire underwriting process takes place in-house, thus eliminating
the margin of the third-party fronting company which would otherwise
have to be used. Brokers' commissions are also often eliminated.
Consequently the use of direct-writing captives presents a highly
cost-effective solution to corporate clients.
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