Chapter · January 998 doi: 10. 1007/978-1-4615-6187-3 10 citations reads 2,488 author: Some of the authors of this publication are also working on these related projects
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10.Retentionandcaptiveinsurance (1)
The Captive Insurance Market Karl Borch (1990, p. 273) reported that one of the oldest captive insurance company in Europe is Industriforsikring SA which began its operations in 1920.
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It is still a pure captive, and a wholly owned subsidiary of the largest industrial corporation in Norway: Norsk Hydro.
Today, many firms and organizations in the United States, United Kingdom, and other developed countries own or use captives to meet part of their corporate insurance coverage needs. Most of the transnational corporations listed in the Fortune's 500 largest companies own and use captive companies. The use of captives in developing countries is limited to a relatively small number of firms from new industrialized countries in Latin America or Asia. On the other hand, the majority of captive locations are in developing countries.
Concerning the potential positive and negative aspects of captive companies in developing countries, it has been pointed out that the activities of captives have brought in an increase in the quality of coverage, efficiency, loss prevention and other services from local insurers and education in risk management. However, domestic insurance business and foreign exchange may have been diverted from developing markets because of the operations of transnational companies using offshore captive insurance companies (UNCTAD, 1984).
In considering the offshore insurance potential, the owner of a captive insurance company will be looking for favorable environmental and infrastuctural characteristics. The environmental factors relate to political stability, stable currency, minimum or no exchange control, a favorable tax and investment environment, and the lack of stringent insurance regulation. Adequate international communications and transportation facilities, sufficient banking, good accounting and legal services, as well as some insurance expertise are viewed as necessary conditions for a country to be considered favorably as an offshore domicile.
The success of Bermuda as a captive center is largely attributed to its offshore potential as well as its proximity to the United States. Other things being equal, the owner of a captive will naturally locate conveniently close to home. However, there has been a recent tendency for offshore captive insurers to come "onshore" as insurance legislation in some States has made it easier. Typical offshore locations for European companies include Curacao (the Netherlands Antilles) for the Dutch companies, Guernsey, isle of Man or Gibraltar for UK companies.
One significant observation is that countries or territories which were formerly under British occupation and have a legal system patterned off the British Common Law, have attracted the vast majority of the captives around the world. In particular, Commonwealth Caribbean States stand to derive a number of economic benefits by facilitating the operations of captive insurance companies. The prospects for pure captives to be created in the Asia and Pacific region might be interesting, specially for Singapore, although the characteristics of certain insurance markets may discourage captive formation .
According to Tillinghast's Captive Insurance Company Directory or to reports from the publication Business Insurance there is around 2,850 captives in the world at the end of 1991. Of these, the majority ( about 70%) are single-owned 13
captives. Comparative estimates of the size of the captive insurance markets differ from one publication to another. They are presented in Table 10.4.
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