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Returns on a captive investment; Earnings can be volatile but do help offset overall cost of risk.

Publication: Business Insurance
Publication Date: 14-AUG-06 		Format: Online
Delivery: Immediate Online Access
Full Article Title: Returns on a captive investment; Earnings can be volatile but do help offset overall cost of risk.(Perspectives)

Article Excerpt
Byline: Don Riggin

Group captives for midsize companies have existed since the mid-1980s.

There are many inventive definitions of what constitutes a group captive, but its fundamental characteristic is this: The policyholders and shareholders are the same. This means that the captive insures no unrelated parties, only its owners' risks. The advent of single-parent captives predates that of the group variety, but typical single-parent captives are nothing more than efficient cost centers. Unless the captive also insures third-party risks, its value to the company must lie in areas not related to generating returns on equity.

While the U.S. multiline insurance companies earned underwriting profits in only two of the last 28 years-1978 and 2004-group captives literally cannot afford not to earn underwriting profits, as their financial size usually is not adequate to generate sufficient investment income....

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