This document provides an overview of how to measure and maximize the value of a captive insurance company. It discusses various techniques for measuring captive value, including comparing financial projections to alternative risk financing approaches, analyzing loss cost projections, examining key financial ratios, and benchmarking against peer captives. The document also outlines strategies for creating shareholder value such as broadening risk coverage, insuring employee benefits, setting appropriate confidence levels for funding losses, releasing excess capital, changing underwriting strategies, and periodically evaluating service providers. The overall goal is to help captive owners determine a captive's current value and identify ways to improve value over time through effective risk management and financing.

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Captive Value
Mitchell Santry
Independent Study
West Virginia University

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Table of Contents
I. Introduction 3
Alternative Risk Transfer
What Is a Captive?
Outlook on Captives
Introducing Captive Value
II. Measuring Captive Value 5
Measuring Techniques
III. Creating Shareholder Value 7
Confidence Levels
Adding Captive Value
Captive Burnout
Eroding Captive Value
IV. Captive Value Simulation 11
First Experiment
Second Experiment
Summary Discussion
V. Merger and Acquisition 13
VI. Conclusion 14

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Introduction
Alternative Risk Transfer
To understand captive insurance, one must first examine and understand the purpose of
alternative risk transfer,which is the idea of finding different and more efficient ways to finance a
business’s risks. One method of risk financing is the process of transferring funds for the payment of
losses by an insurer. The main reason behind these risk financing programs is to transfer the risk and
responsibility for paying these losses to another entity. (10)
Traditional risk transfer programs include commercial insurers and reinsurers. Commercial
insurers sell various types of insurance to the public. The public pays the commercial insurer a premium
and in return, the insurer covers the risk that the individual or business wants covered. In the alternative
risk transfer market,businesses will work alongside their professional advisors to finance and meet their
risk management objectives that solely benefit the insured. (10)
This is where the purpose of alternative risk transfer comes into play. Businesses are trying to
seek better and more efficient ways to finance their risk. In the traditional risk transfer market,the
insurance underwriters need to understand the risk well enough so they can price it. These underwriters
try to determine a reasonable premium rate,so insurers will have adequate funds to pay expected losses.
This is a crucial part of the insurance market, because underpricing premiums can financially damage an
insurance company. (10)
When traditional insurance underwriters are dealing with a new type of risk, they may be
unwilling to provide coverage because of the fact that they are committing their capital to finance a risk
exposure they know little to nothing about. When there are a small portion of individuals insured for a
particular risk, few numbers of losses occur, resulting in minimum loss data. This makes it difficult to
price premium rates. When something cannot be predicted because of limited data availability, that risk is
deemed uninsurable. Other risks might be uninsurable, because of special risks that only a limited
number of businesses are likely to incur. When this is the case,starting up a captive might be a feasible
option for a business to finance the risk themselves. (10)
What is a Captive?
A captive is an example of a risk financing mechanism. A risk financing mechanism is an entity
by which the insured can transfer funds or capital to for payment of losses. They are a legal entity, which
means they can take independent action to make decisions and exercise authority. It is created and wholly
owned and controlled by one or more non-insurance companies to insure the risks of its owners and meet
their risk management needs. (10)

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A captive is a licensed insurance company, thus it issues policies, buys reinsurance, and receives
commissions from reinsurers. Companies will put their own capital at risk and create their own captive
insurance company to achieve their risk financing objectives. For a company to create a captive, they
must have adequate risk capital. Not all companies can start up a captive. You have to be willing and
able to contribute risk capital. Insureds of a captive not only have the ownership and control of the entity,
but will also be the beneficiary of the captive’s profitability. (10)
By owning their own captive, management will have a better control over the way their risks are
being financed. A captive’s overall purpose is to insure and meet the risk financing objectives of the
insured, thereby creating value for the parent and its shareholders. (10)
Outlook on Captives
Today, Fortune 500 companies and large nonprofit organizations all around the world are
incorporating captives into their business plans to meet their risk financing objectives. These entities self-
insure the parent company against predictable risks, like workers’ compensation and malpractice claims.
Nowadays,it is hard not to find a major company or university without a captive insurance entity.
Furthermore, captives are becoming more appealing for small to mid-size companies. This is due to the
IRS ruling under section 831(b) where a corporation can payout up to $1.2 million in premium to the
captive, tax-free. Captives are also appealing to smaller companies that want to cut down yearly expenses
associated with health insurance. The Affordable Care Act is becoming more of a concern with
businesses. If employers do not offer health insurance to their employers within a certain deadline in the
near future, those companies will have to pay a $2,000 fine per employee, but this only applies to
employers with 50 or more employees. (8)
Introducing Captive Value
There are many ways in which a captive insurance company can create value for its parent, while
maximizing shareholder value. However,not all captives will create value. Some might run a surplus in
positive net cash flows, while others may erode value, depending on how the parent is utilizing the
captive. It is an effective risk financing tool, but using it properly to create value for the parent and its
shareholders is the purpose of a captive insurance company. Before analyzing how to maximize captive
value, one must study how to measure captive value in order to determine where that captive stands
financially and how to make the necessary changes if any. (5)

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Measuring Captive Value
Measuring the value of a captive can be a complex situation, something that is not easily done.
One of the reasons why this might be the case is due to the lack of publicly available information on a
company’s financial statements. However,for captive owners, they do have the resources and
information to assess the performance and economic value of their captive.
When a firm incorporates a captive, their insurance entity will create shareholder value when the
benefits of the investment outweigh the costs. A firm’s return on invested capital must exceed its
weighted average cost of capital for the captive to add value to the parent and its shareholders. To
analyze and ensure that value added to the parent is meaningful, all financial and actuarial data needs to
reflect the true financial position of the entity. The actuary needs to perform mathematical calculations to
ensure that the captive has adequate capital by studying premium and loss reserve levels within the
captive. This can be performed through the use of loss cost projections. The actuary does not want to
analyze the loss data over a single year, but rather over multiple years. This is because a firm might
experience a larger than expected loss on the balance sheet and therefore could result in a loss for that
year. This could lead to misleading data and as a result, companies could change their risk objectives
based on that information, reducing the economic value of the captive. There is not one correct way to
measure value added, but rather an abundance of techniques and approaches to measure captive
performance. (5)
Measuring Techniques
There are a variety of different ways to value a captive. One of those methods is to compare your
captive with alternative financing approaches. A captive feasibility study, usually done by a captive
manager, will normally project the net present value of the after tax cash flows in comparison to the
current program. The projection will require data showing how the numbers would stack up if the current
program had continued and comparing those costs with the captive’s costs projections, directly measuring
the captive’s value. (1)
Another way to measure captive performance is a loss cost projection. These are done either by
an actuary or a captive manager. These individuals provide periodic loss cost projections, analyzing
ultimate losses in a captive. There are two loss ratios that measure premium and loss expenses. Out of
the two, the ratio an actuary or captive manager wants to pay attention to is called the ultimate loss ratio.
It is calculated by taking the ultimate losses of the captive (incurred losses plus IBNR) over a certain time
frame, for example two years, and dividing that number by the premium received. IBNR losses are the
extra loss expenses associated with the time between when a claim occurs and when that claim is actually

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paid out by the insurer. The amount of the IBNR losses can grow substantially over this time interval for
a number of reasons including litigation and court costs. Ultimate losses should represent about 60
percent of your premium. This means that for all premiums paid to the captive, 60 percent of that revenue
will be paid out in losses. The additional 40 percent will be paid out in expenses associated with running
the captive and domicile compliance. Whatever premium is left over will be paid back to the parent
company or reinvested back in the captive. It is vital that a captive has enough capital to pay all expenses.
This is why most captives take advantage of investment income, so they will have additional funds to pay
losses. Dennis Silvia, captive consultant at Cedar Consulting LLC, said that when the ultimate loss ratio
exceeds 60 percent, this normally indicates that the captive is not where it needs to be financially, so
unless improvements are made, it is not in the best interest for the parent company to continue operations
of the captive. (2)
A third method to measuring captive value is through the use of key financial ratios and ranges.
The most important ratios can be divided into three categories: leverage, liquidly, and profitability.
Leverage ratios measure how much risk the captive holds in relation to how much capital it has on hand.
Leverage ratios include premium-to-surplus, reserve-to-surplus, and risk retention ratios. Liquidity ratios
measure how much cash is sufficient to meet its short term funding needs and whether it needs to borrow
any additional funds from the parent. These ratios include assets-to-liability and reserves-to-liquid ratios.
The last category is the profitability aspect that targets profit and loss ratios which measure the captive’s
financial performance. They include loss ratio, expense ratio, loss plus expense ratio, investment income
ratio, and operating ratio. (1)
Captive value can also be measured from the use of benchmarking. Benchmarking is a technique
used by gathering key performance indicators from your captive and comparing the data to others in the
same industry for best results. For this tactic to work, captive owners will need to confront their service
providers or their domicile to retrieve data on other captives. The other benchmarking alternative is the
hand-picked peer group. This is where the parent conducts their own benchmarking study and selects
another captive to participate in the study. This technique is a more hands-on approach, and it requires
some collaboration between peer groups since they discuss the results between the two. (1)
All four of these performance measures are useful. With that being said, the most accurate
performance measure for captive value is the comparison to the captive itself and how its value is
changing over time. Implementing the most appropriate techniques and establishing realistic estimates
for future goals will give the captive a target to achieve and a way of measuring value added. (1)

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Creating Shareholder Value
After assessing the performance of the captive and understanding its financial strength, deciding
on how to improve the value of the captive and employ the most appropriate risk financing strategies to
create value for the parent and its shareholders is the ultimate goal.
Many captive owners become comfortable with the amount of risk and the types of risks the
captive underwrites from year to year. It insures the same types of coverage and because it is cost
effective, parent companies do not see the need for change. Yet,all companies eventually evolve and
grow to keep up with economic and technological advances. These companies will expand
geographically and/or broaden their range of products and services,and with this comes attaining more
risk. A captive manager will reassess the parent’s risk profile yearly and adjust the captive’s book
accordingly to reflect these increases in risk to meet the financial objectives of the parent company. (4)
Broadening the scope of coverage for the captive’s book, such as underwriting risks from a third
party or writing different types of risk will enhance the value of a captive by lowering costs,increasing
premiums, providing risk diversification, and bringing tax incentives. Third party business might consist
of utilizing the captive to insure employee benefits, such as group term life insurance and long-term
disability. Onshore captives may qualify for tax breaks on premiums received and investment income if
at least 30 percent of the captive writes third party business such as employee benefits. (4)
Insuring employee benefits in a captive has become increasingly popular over the years. Captives
have traditionally insured risks along the lines of property and casualty coverage. As health insurance
costs and other employee benefits skyrocket, the need to insure these risks in a captive have become
paramount for any business. Also, the need for unrelated third party coverage in a captive is due to the
increased coverage of employee benefits. Coverage can consist of active and retiree medical, life, and
disability insurance to supplemental executive retirement plans and deferred compensation plans.
Insuring these types of risk within a captive can bring many benefits and ultimately add value to the
captive. It will add to a captive’s book of business, which will increase the range of coverage and
diversify the risks that the captive insures. Many employee benefits risks tend to be less volatile than
property and casualty risks, therefore reducing costs and providing better coverage. (2)
James Rawcliffe, Vice President at Sagicor Insurance Managers,embarks on how a captive’s key
value proposition to its parent is stability. He points out the fact that natural disasters do happen, for
instance Hurricane Sandy. When this is the case,major events like this one create volatility in pricing.
By having a captive, it is possible to set what level of premium you will be paying even after the disaster
takes place. Having a fixed premium helps to simplify insurance planning and budgeting and also spares
the owners with no surprise rate hikes in premium. (9)

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Confidence Levels
While it is crucial to have stability in pricing, having adequate premium to pay for expected
losses is even more important. This is where the concept of confidence levels plays a role. An actuary
will calculate a percentage by determining the probability that premiums will be sufficient to pay losses
incurred in the captive. A confidence level of 50 percent means that the captive is funded at the average
amount, but also has a 50 percent chance of being underfunded. Instead, funding at a 70 percent
confidence level will allow the captive to prosper with favorable loss experience and absorb higher than
expected losses for that given year. The actuary determines the confidence level based on the expected
amount of premium the captive will need as risk capital. The expected amount is the actuary’s range of
reasonable loss reserve estimates. (3)
Confidence levels are calculated from mathematical models using loss development triangles or
loss triangles (3). These loss triangles analyze loss data over a certain time period, broken up into
intervals of months or years (2). The goal of these loss triangles is to compute a development factor
based on the loss information to calculate ultimate loss costs for the given years (2). From this data, the
actuary can correctly price premiums for the risks to be insured and also provide a basis for the amount of
capital and surplus needed to fund the captive (2).
One of the factors to consider when determining the right confidence level is the types of risks
insured. An actuary needs to find out if the risks insured are short tail or long tail claims. There are two
recommendations captive researchers have observed over the years while examining confidence levels.
This advice results in better practice and produces long term success. They first suggest managing the
captive with a conservative 70 percent confidence level. The parent will fund the captive at a sufficient
rate that is not too high or too low. Next, they recommend that the owners not interfere with their
actuary. Actuaries are experienced professionals that will undertake necessary procedures ensuring
premiums are adequate for funding. If that means raising or lowering the confidence level, actuaries will
work in the best interest of the owners. (3)
Confidence levels are an important aspect of the captive process because correctly pricing
premiums will increase surplus for the captive and profit for the parent. In the long run, the captive will
experience more success and create value for the owners and its shareholders. (3)
Adding Captive Value
There are multiple ways to enhance the value of the captive. One of these ways is to release
excess capital within the captive. The buildup of excess surplus over the years can happen from favorable
loss experience and a good return on investment income. A dynamic financial analysis (DFA) could be

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undertaken to identify the appropriate level of capital to be held in the captive to support its liabilities and
release the excess amount back to the parent company, freeing up additional funds to be reinvested into its
core operations. (5)
Another option involves changing the current underwriting strategies and covering other types of
risks within the captive. This is done by taking the excess capital tied up in the captive and writing
additional lines of coverage,but only risks that the parent perceives to be profitable to enhance captive
value. An actuary can also analyze the captive’s book to see if the parent should increase its retention
level or reduce the reliance on the reinsurance market to increase profitability. If the captive has been
taking a hit on losses and thereby eroding value, it can raise premiums or stop writing coverage for those
particular lines of risk. (5)
Evaluating the entire captive value chain periodically is another method that might create more
value for the captive. The captive value chain is comprised of the service providers, which consist of the
captive manager, actuary,third party administrators, auditors, reinsurers, etc. The captive owner needs to
address whether they are obtaining the value they need from their service providers. If they are not, then
restructuring the value chain might be an option to consider. An example of this might be acquiring a
new captive manager or dropping their fronting insurer and issuing policies directly to the insured. This
could save the captive money and improve service, and consequently increasing the value of the captive.
(5)
Disclosure of captive formation can increase the value to the parent company. Many businesses
with captives fear any disclosure of public information on their financial statements due to market trends
in company performance once the captive is known to exist. Research has shown that oil and gas
companies that incorporated captives saw an increase in stock prices, while similar studies suggest that
markets are indifferent to captive formation. Still, it might be in the interest of parent companies to
disclose captive information on their annual reports, because the market might reward them. (5)
Companies’ values and what they stand for is immense in the public eye. Actually performing
and carrying these values out is how a firm gets their image rating. With the establishment of a captive,
corporate governance and the relationship the owners have with their service providers needs to be at
arm’s length. Whether it is the captive manager or the actuary,they need to be an independent provider,
acting in the best interest of the shareholders. (5)
Captive Burnout
A captive can eventually run its course and no longer provide the parent with a resource that is
economically valuable. Captive owners that do not believe that their captive is adding any sort of value to

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their business or does not fit their current risk objectives can sell that entity to a third party, eliminating
their risk exposure and receiving cash. There are companies that show an interest in purchasing captive
insurance companies, however, the market is quite small. (5)
If the sale of a captive is not a feasible option, the parent might want to consider a run-off as an
exit strategy to pursue, liquidating the captive’s assets off the balance sheet. This is not a company’s
most preferred option as it requires constant involvement of its senior management team and investment
over multiple years as the liabilities on the financial statements cease to exist. Yet,the risks associated
with these liabilities are not eliminated as the debt expires over time. (5)
The last option captive owners might undertake is a process called a portfolio transfer. This is a
procedure where the parent transfers lines of coverage within the captive to another insurer. The insurer
could be a fronting company or a reinsurer of the captive entity. This is usually done when some or all
lines of business are not providing the value to the captive the parent expected. (5)
Eroding Captive Value
Parent companies might not use their captive properly in accordance to their risk financing
objectives. When this is the case,captives can experience a decrease in overall value. One of the ways a
firm can erode value to its captive is through domicile selection. Selecting the proper jurisdiction is vital
for the growth and stability of the captive. The risks insured within the captive also play a role in
domicile location. Choosing a suitable domicile can potentially free up millions in capital for the parent,
hence adding value. If a captive is eroding value, relocating the captive might be a practicable option to
consider. (5)
Another way in which a captive could potentially erode value is when a parent incorporates two
captive insurance companies. Having two captives would lead to an increase in oversight by the parent,
more startup capital to fund both of the entities, more premium expenses, and could result in higher
losses. By merging these captives into one company, operating the captive would be less complicated.
The parent would benefit from the diversification of risks, and this would lead to stability in premium
prices as well. The captive’s capital and loss reserves would be integrated as one, which would free
excess surplus back to the parent. (5)
Even if a parent company thinks their captive is no longer economically valuable or is actually
eroding value, without an accurate measurement of captive performance,developing risk strategies and
objectives to capitalize on shareholder value may be difficult. With the risk strategies listed above to
increase the value of the captive, the goal is to enhance value across all value chain aspects of the captive
industry. In return, value will increase for the shareholders of the parent corporation. (5)

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Captive Value Simulation
The article, “Conditions for Captive Insurer Value: A Monte Carlo Simulation,” constructs two
scenarios using this simulation to project what percentage the captive will generate positive value under
numerous situations. This simulation takes a look at what type of captive structure will produce the most
positive shareholder value. (7)
The first scenario states that the captive forms, receives initial capital, but writes no lines of
coverage. If there is a hard insurance market, the captive will write lines of business, receive additional
capital by the parent if needed, and cede part of its premium to reinsurers. If a soft market exists, the
captive’s capital is returned to the parent and remains dormant. Losses are paid by the captive and
reinsurer up to a certain retention level. If the reinsurer defaults, the captive will cover loss expenses and
the parent will borrow additional funds if capital is inadequate to cover ultimate losses. If the parent
borrows funds, they will pay those funds back with interest. (7)
The second scenario states that the captive forms, receives initial capital, and writes coverage
regardless of a hard or soft market. The captive will cede part of its premium to a reinsurer. The losses
will be paid by the captive and reinsurer. Again, if the reinsurer defaults on its payment, the captive will
cover all losses. The parent will borrow additional funds if the captive’s capital is not sufficient enough
to cover loss expenses, and they will pay off all loans with interest. (7)
What separates the first scenario from the second is the fact that the captives incorporates, but
only writes business in the event of a hard insurance market. The second model writes and insures risks
as a full-time operation. The first scenario uses the captive part-time, and this creates flexibility, because
the insureds are only using it when they need it. (7)
First Experiment
The first simulation takes into account the two scenarios mentioned above. They also select
Bermuda and the British Virgin Islands for their experiment. The idea of this simulation is to test which
captive structure creates the most shareholder value when combining the two scenario methods with
domicile location. They concluded that the first scenario creates more value compared to the second
method. This is because the parent uses their captive only in hard insurance markets, which creates
flexibility in its use. Captive researchers also inferred from the information that incorporating a captive in
the British Virgin Islands, not Bermuda, increases the probability of positive shareholder value. (7)
With captive formation in the British Virgin Islands, operating costs will be lower. Incorporating
fees are 42 percent less than fees in Bermuda, and the minimum amount of capital required to fund the
captive is 17 percent less in the British Virgin Islands. Although both countries have low regulatory

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requirements, studies suggest that captive regulation in the British Virgin Islands is less strict, which can
save the parent money and add value. (7)
To summarize the results, one table depicts a captive incorporated in Bermuda and the other
shows a captive located in the British Virgin Islands. Percentages in the table are the probabilities of
positive shareholder value under the two scenarios taking into account all input of variables that went into
the data. As previously mentioned, the first scenario had a better chance of creating value for the owner’s
shareholders. The data conveys that forming a captive in the British Virgin Islands and only using it in
hard insurance markets has the best chance of adding value to the parent company and its shareholders.
(7)
Second Experiment
In experiment two, researchers examine only captives located in the British Virgin Islands and
only the first scenario. As previously mentioned, this is writing coverage only in a hard insurance market,
maintaining flexibility when insuring risks. Each table consists of percentages under different scenarios
to see which strategy would have the best chance of creating value. It is then further broken down on
whether the parent initially capitalizes the captive with cash or borrowed funds. For this simulation, there
are three separate tests with each test consisting of a different captive structure, but all established in the
British Virgin Islands and all operating under scenario one. (7)
The first experiment focuses on a captive formed in the British Virgin Islands under scenario one,
has no fronting insurer, but writes reinsurance. Under this simulation, shareholder value is all around
highest when the captive’s investment return is held at five percent above the parent’s cost of equity
capital, which is the rate of return shareholders demand to compensate for the risk they take investing in a
firm. Under this assumption, if the insured used cash to initially fund the captive, they would have a
25.75 percent chance of creating value. However,if the owners would have used a promissory note to
fund the captive, they would have a 48.69 percent chance of enhancing shareholder value. (7)
A second test examines a captive in the British Virgin Islands under scenario one, but this
insurance entity has no fronting arrangement and no reinsurance. Again, from the results, shareholder
value is all around highest when the captive’s investment return is held at five percent above the parent’s
cost of equity capital. Using cash or debt to fund the captive, the owners would have a 100 percent
chance of creating value for its shareholders. (7)
In a third test, a captive insurer is located in the British Virgin Islands under the first scenario.
The parent runs the captive with the help of a fronting insurer, but no reinsurer. Once again, shareholder
value is highest when the captive’s investment return is held at rates in excess of the parent’s cost of
equity capital. With the use of cash to the captive, the owners would have a 62.62 percent probability of

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creating positive value. Borrowed funds would increase the parent’s probability of creating positive
shareholder value to 100 percent assuming the captive’s investment return rate was higher than the
parent’s cost of equity return rate. (7)
Summary Discussion
The captive produces positive shareholder value when the net present value of its cash flows,
discounted at the parent’s cost of equity capital paid to shareholders, is positive. The captive’s return rate
on investment must be higher than the parent’s cost of equity return rate for the captive to generate
positive value for the captive owners and its shareholders. (7)
With all the data at hand, captive researchers have found the ideal situation to fully maximize
shareholder value. They suggest that a business license the captive in the British Virgin Islands. This
will reduce the overall operating cost for the parent. Secondly, use the captive only during a hard
insurance market to maintain flexibility when writing lines of business. Furthermore, they argue that the
owners not use a third party administrator or fronting insurer. Regulation is less complex in the British
Virgin Islands, making it easier to self-manage the captive and insure directly to the parent company.
They also recommend not using reinsurance. This will eat away at the captive’s premiums when ceding a
certain percentage to the reinsurer, and this portion of the premium will not be able to invest by the
captive to generate income. They add that the benefit of investing loss reserves to accumulate investment
income appears to be more vital to the captive than using a reinsurer. Lastly, the article also notes that the
captive needs to earn a return rate of investment greater than the parent’s cost of equity return rate as
previously discussed, while using promissory notes to satisfy the initial funding requirement for the
captive. (7)
Merger and Acquisition
Randall L. Martin, risk manager at American Electric Power, discussed the impact and value a
captive brings to the company acquiring it. Before a company can measure the value of a newly acquired
captive, it needs to understand the cost of risk associated with the captive. This includes known claims,
IBNR losses, and development factors. He also points out what to look for when making the necessary
decisions for the future. First of all, he suggests the acquiring company ask for a business plan, laying out
the purpose of the captive and how the acquiring company plans on using it. Mr. Martin advises
management to analyze the captive’s investment portfolio to see how aggressive or risky it is. The next
step is assessing the captive to see where the money is sitting in. How is the merging company’s captive
being invested, and is it reliable and conservative? The final step is taking a glance at the captive’s claims
history and evaluating whether the captive has any cushion in relation to premiums and losses. This is

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where confidence levels come in. Making sure the captive has adequate funding to pay for expected
losses. If the confidence level is appropriate, then with favorable loss outcomes, the captive can realize a
profit and add value to the parent. (6)
Conclusion
Establishing a captive brings a plethora of benefits to a parent company. Incorporating and
operating the captive can be extremely difficult without the right personnel and risk management
objectives in place. The success of the captive depends largely on the shoulders of the parent, but also the
service providers running it in the best interest of the captive owners and shareholders. James Rawcliffe
emphasizes on the fact that for a captive to be successful, it needs the full support of management
personnel and looked at as a realbenefit to the parent. He also states that the captive should not be
viewed as a short-term fix, but rather a long-term solution. It is a complex operation, something that
needs to be understood before going captive to ensure that the investment will add value in the long-term.
With the right resources in place and a sound financial strategy to achieve the risk objectives of the
insured, a captive might be a great financing tool, creating value for the parent company and its
shareholders. (9)

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Works Cited
1. “180 Degrees: A guide to what’s hot in the world of captives and ART.” Strategic Risk Solutions, 2012.
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2. Captives:An Overview. Minneapolis: Captive Insurance Companies Association,2008. Print.
3. “Examining Confidence Levels.” Captive International, 28 November 2013. Web. 17 February 2014.
http://www.captiveinternational.com/article/examining-confidence-levels.
4. James, Clive. “Getting More from yourCaptive.” Kane Holdings Limited, 2013. Web. 25 March 2014.
http://www.kane-group.com/media-centre/comment/getting-more-from-your-captive.html.
5. Johnson,Erik. “Captive Insurers: Delivering Value?” Risk Management.Risk and Insurance Management
Society, Inc. Web. 5 February 2014. http://cf.rims.org/Magazine/PrintTemplate.cfm?AID=3271.
6. Martin, Randall L. American Electric Power. Personal Interview. 20 February 2014.
7. Scordis, Nicos, James Barrese and Masakazu Yokoyama. “Conditions for Captive Insurer Value: A Monte
Carlo Simulation.” Journal of Insurance Issues, 2007, 30(2): 79-101. Web. 26 February 2014.
http://www.researchgate.net/publication/227651378_Conditions_for_Captive_Insurer_Value_A_
Monte_Carlo_Simulation.
8. Sullivan, Paul. “An Insurer of One’s Own? It’s possible, With Caveats.” The New York Times, 14 July
2012: B5(L). Global Issues In Context.Web. 27 February 2014.
http://www.nytimes.com/2012/07/14/your-money/a-captive-insurance-company-offers-financial-
benefits-if-not-abused-wealth-matters.html?_r=0.
9. “The Captive Value Proposition.” Captive International, 30 December 2012. Web. 26 February 2014.
http://www.captiveinternational.com/article/the-captive-value-proposition.
10. Westover,Kathryn A. Captivesand the Management of Risk. Dallas: International Risk Management
Institute,Inc., 2006. Print.

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