| A captive insurance company is a formalized subsidiary established in order to finance losses from designated risks, primarily of the parent.; Captives have been of considerable interest to insurance practitioners in recent years. They have been the subject of a great deal of writing in trade journals and commercial pamphlets in which there has been a conspicuous lack of empirical research.; This study deals with offshore captive insurance companies located in Bermuda, which is the prime domicile of offshore captives.; The main purpose of the study is to assess the current status of offshore captive insurers, which constitute a significant element of the insurance industry.; The approach taken here is two-fold: A "macro" analysis of the components of the captive movement, and a "micro" analysis of the captive organization and its key role-players.; The study relies on three independent sources of information: (a) Data gathered from the Bermuda government's files regarding the total captive population. (b) Operators' Survey: responses to a questionnaire sent out to a sample of captive operators. (c) Managers' Survey: responses to a questionnaire sent out to a sample of management companies which manage Bermuda captives. In addition, there have been numerous private conversations and off-the-record interviews conducted with captive operators and managers, and with government officials.; This report is organized into five major chapters that correspond to the principal components of an organization and establish the framework of this research: environment, structure, people, goals, and operations.; The environment of captives is identified through the major subsystems that interact with captives. The two principal subsystems that influence the captives, the parent companies and the management companies, together with the captives themselves are the central components of the offshore captive movement.; The discussion of structure is focused on the major elements that characterize the captive movement and the captive organization, and the principal interrelations among those elements. The insurance industry is identified as a major factor in the development of the movement through ownership and control of captives and management companies.; With regard to people, three types of role-players are identified as the key persons in a captive organization. They are the operator of the captive, his superior in the parent company, and the representative of the management company to the captive organization. These three and their system of communication, authority and work-flow constitute the informal structure of the captive organization.; Motives for forming captives and goals set up by operators and owners of captives are classified. Motives are compared pre- and post-formation of the captive. The changes the movement has been undergoing in recent years are reflected in the distribution of motives and goals.; Operation of captives is analyzed along the traditional functions of insurance companies. Most of the functions assumed by regular insurers are used in captives' operations. However, some functions, notably underwriting, reinsurance and investment, are reflective of the special characteristics of offshore captives' operations.; The contribution of this work is two-fold: It provides, for the first time, empirically supported estimates of various characteristics of captive insurers at aggregate and individual levels. Second, it establishes a conceptual framework for analyzing the captive movement and a captive insurance organization. |
