Captive insurance companies : a theoretical and empirical study

[摘要] ENGLISH ABSTRACT: Much research has been done on risk coverage within the field of the traditional insurancemarket, but the concept of alternative risk transfer is fairly new to the world of riskmanagement. The need for more innovative, multi-faceted approaches to meet possiblelosses, together with the growing resistance to the cross-subsidisation inherent in traditionalinsurance, has initiated the development of the captive insurance industry as an alternativerisk transfer mechanism.The objective of this research was to study the application of captive insurance as a riskmanagement mechanism for managers. The objective comprised a modelling approach formanagers to handle the strategic implications of establishing and operating a captive insurer.The tasks that were required for this assignment were as follows:• The completion of a literature study of the basic theory available on captive insurance asan internal risk financing mechanism for management;• The collection of relevant empirical information on the subject by means ofquestionnaires, which had to be based on the literature study;• The critical analysis of the collected data; and• The development of a decision-making model based on the outcome of the availableinformation, that could provide a practical guideline for management to decide on theestablishment and operation of a captive insurer.Twenty-five questionnaires were sent out during February 2003 to cover all the registeredonshore and cell captive insurance companies in South Africa. Offshore insurancecompanies could not be included in this study due to article 33 of the Reserve Bank's Actno. 90 of 1989 regarding confidential information. Of the 25 captive insurance companies,21 companies completed the questionnaires, and three respondents declared that they did notperform captive insurance activities anymore. A response rate of over 95 per cent istherefore achieved.The information obtained from the questionnaires was summarised on a SPSS spreadsheetand subjected to a statistical analysis to form the bases for the empirical investigation. Theresults of the empirical study for onshore and cell captive insurers leads to conclusions regarding the importance of the objectives needed for establishing and operating the captiveInsurer.The three most importantfactors which should determine the decision of a holding companyto establish an onshore captive insurer were identified as the financial commitment of theholding company, the spreading of the risks of the holding company, and the retentioncapacity of the holding company. The three most importantfactors which should determinethe decision of a holding company to operate an onshore captive insurer are the retentioncapacity of the holding company, the financial commitment of the holding company, and themanagement commitment of the holding company.The three most importantfactors which should determine the decision of a holding companyto establish a cell captive insurer were identified as the spreading of the risks of the holdingcompany, the retention capacity of the holding company, and the financial commitment ofthe holding company. The three most importantfactors which should determine the decisionof a holding company to operate a cell captive insurer are the financial commitment of theholding company, the spreading of the risks of the holding company, and the managementcommitment of the holding company.A decision-making model for both onshore and cell captive insurers was developed as a toolfor risk managers when deciding on the establishment and operation of a captive insurer aspart of their risk management programme. The resulting conclusions and recommendationsof this assignment are largely based on the personal viewpoints of the captive insurers activein the South African captive insurance industry. It is therefore recommended that futureresearch also includes the role and views of the holding companies.

[发布机构] Stellenbosch University