Captive Reinsurance: financing and governing risk

In a captive reinsurance model, an insurance company controlled by the group assumes a share of the risks insured by group companies.

A captive can strengthen programme governance and mitigate the effects of volatility in the insurance market. It can also allow the group to retain risks internally where market capacity is limited or unavailable, for example due to poor claims experience, limited insurance market capacity, policy exclusions, or emerging risks that insurers are not yet ready to cover. It may also help optimise specific covers by retaining defined layers of risk.

Assessing and modelling the risks to be transferred to the captive supports more informed decisions about risk retention and transfer. This involves reviewing the profile and volume of exposures, claims history, retention capacity and available capital in light of solvency requirements, operating and reinsurance costs, and applicable governance and regulatory requirements.

A captive is not automatically a lower-cost solution, nor is it suitable for every organisation. For some corporate groups, however, it can represent an advanced, long-term sustainability choice that helps optimise risk transfer. The model’s sustainability depends on a structure aligned with the exposures and an assessment of the total cost of risk, including capital, fronting, reinsurance and administration. The aim is to build a more transparent programme aligned with the group’s needs over time.