A HISTORY OF CAPTIVES
B
ehind the development of captive insurance is the inevitability of a good idea. Although the idea proved a hard sell in the early years, captive insurance has become the dominant business model worldwide for managing
certain types of risk.
The captive was initially seen as a means of providing coverage when markets were unable to satisfy demand. Lately, though, the very real advantages captive insurance affords have led to the growth of this branch of self-insurance independent of market conditions.
Captive insurance was originally known as alternative risk transfer, but is now a widespread and well accepted mainstream method of insuring against risk. The number of captives worldwide has grown to almost 6000, writing more than $200 billion in annual premium on estimated capital and a surplus of more than a quarter of a trillion dollars.
Early days The first expression of what would become the captive concept was a mutual company, not materially dissimilar in structure from what we now call a group captive, formed by New England textile manufacturers in the 19th century. Prevailing rates for fire insurance, then keenly in demand, had made self-insurance a viable option.
Mutual and co-insurance companies that embraced what we now know as the captive concept existed in Guernsey and Luxembourg in the mid-1920s. Fairly simple risk retention operations were in operation by this time. The first company that fits the modern template of a captive insurer was formed in the US in the 1930s. These disparate strands did not exactly constitute a captive movement, but history was casting its shadow forward.
The catalyst in the establishment of captive insurance was Fred Reiss of Ohio. He had been a property insurance engineer before becoming an insurance agent. Among his clients were steel mills, the coke and iron ore output from which was shipped only to their owners. The mines were nicknamed ‘captives’. When Reiss began to help his clients to
CICA | Forty years of captive leadership
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