A captive is a reinsurance subsidiary that exclusively underwrites the risk insured by a company and company group. Captives are mainly established in countries and regions like Micronesia, Hawaii and Bermuda which have legislation supporting the captive insurance company system, which uses captives to bear risks through reinsurance schemes (*1).
Many businesses arrange various types of insurance in order to transfer their risk to insurance companies. They pay the cost of this in the form of insurance premiums. When a captive is used, the risk transferred to the insurance company and a portion of the insurance premiums are transferred to a captive through a reinsurance scheme to create self-insurance.
Thus the main objective when setting up a captive is to minimize the risk transfer costs to the company and the company group by reducing the loss ratio (i.e. increasing profitability) through risk management (e.g. incident reduction) of the risk assumed (self-insured) by the captive. TIM has two captive companies and is actively involved in captive management.
※1:Since insurance companies located overseas are not allowed to underwrite risk in Japan directly (due to regulations on foreign insurance), reinsurance contracts, which are the "insurance company's insurance," are concluded with a Japanese insurance company and then the risk is transferred to a captive.
For ordinary damage insurance, we conclude a contract with an insurance company based in Japan through an agency. If there is no captive then this is as far as it goes.
This is insurance that an insurance company arranges to cover itself, transferring risk to reinsurance companies in order to stabilize the profits it makes as an insurance company.
Company A finances the establishment of a reinsurance subsidiary to exclusively underwrite Company A's risk.
Reinsurance schemes are used to transfer risk from the insurance company based in Japan to the captive.
Risk that exceeds the retention limits of the captive is transferred to a re-reinsurance company.
Profits are returned to the parent company in the form of dividends and are used as capital for the parent company's damage prevention activities. They are retained within the captive and used to improve the strength of the captive and increase its underwriting capacity.
This is the form of captive insurance company that can be established in Micronesia. The official term is a "multiple corporate captive."
To be specific, by establishing a captive as a subsidiary of the core captive we own in Micronesia, we can reduce the minimum capital needed for establishing captives from USD $1,000,000 to USD $100,000. (*2) Moreover, since the captive will be treated as a subsidiary of our company's core captive within Micronesia, it will be jointly managed together with our company's captives, which can greatly reduce the man-hours needed for everyday business.
※２: USD$100,000 is the bare minimum capital needed. The actual amount may be higher depending on the scale of risk the captive underwrites.