Organisations with predictable losses may retain risk rather than buying coverage, through several structures.
Large deductible and self-insured retention programmes, where the insurer issues a policy but the organisation funds losses below a threshold, usually with collateral posted to the insurer.
Captive insurers. A subsidiary licensed as an insurer, writing coverage for the parent and affiliates. Single-parent captives, group captives, and cell structures within a sponsored facility.
Why. Cost stability, access to reinsurance markets, coverage unavailable commercially, and improved cash flow.
Regulatory. Licensed in a domicile with captive legislation, with capital, reporting and governance requirements. Fronting arrangements where a licensed carrier issues the policy and reinsures to the captive, used where certificates from an admitted insurer are required.
Tax. Whether premiums are deductible depends on the arrangement constituting insurance for tax purposes — risk shifting and risk distribution. Small captive elections have attracted sustained enforcement attention, and arrangements lacking genuine insurance characteristics have been disallowed.
Governance. A real board, independent actuarial support, claims handling that is genuine, and documentation that the captive operates as an insurer rather than as a reserve account.