The earliest known offshore captive was incorporated in Guernsey in 1922, however the origin of the word 'captive' is attributable to Fred Reiss when, in 1953, American Steel Company became his first client. In setting up its reinsurance program he used the term "insurance subsidiary" but this was misunderstood by the insurance market in that an 'insurance subsidiary' could mean the establishment of a competing entity to the direct and local markets.
Since the primary purpose of the insurance subsidiary was to insure the exposures of the parent company and its subsidiaries the insurance company was, in reality, a similar cost control centre and hence, in the purest sense of the word, a 'captive'.
The original 'captives' were owned by individual companies to insure their exposures to loss affecting their earnings per share and their book value per share.
The term 'captive insurance company' then became widely used but its meaning has, to an extent, been broadened to include not only single parent ownership but traditional association business, jointly owned insurance ventures and insurance purchasing groups and other risk retention groups.
For further information contact Peter Crook on Tel: +44 (0) 1481 712 706 or Fax: +44 (0) 1481 712 010.
The contents of this article are intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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