Essays on Role of Captive Insurers in the Financial Market Coursework

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The paper "Role of Captive Insurers in the Financial Market" is an outstanding example of a finance and accounting coursework.   Captive insurance is a form of insurance in which the insurer is fully insured by the insureds. The main aim focuses on self-funding at the risk of the owner as stipulated by Adams and David (2002, p. 36). In its process, it involves a carrier who performs the role as a licensed insurance carrier that is controlled by the given parent corporation or an enterprise. Moreover, Kong and Manmohan (2005) states that the policyholder can be another person, a business or a family who have an interest in insurance.

It is operated so as to provide insurance cover to the owner as well as ensuring businesses of the same type where they are required to pay premiums in exchange for insurance cover. According to Jaffee (2009, pp. 11-12), in 2000, there were approximately 4500 captives who had been registered as indicated in fig 1. This contributed to the net gain of approximately 31.6%. The values of the premiums were estimated to be $20 billion in the same year.

In the past, the risks were ranging from the coverage for property, the casualty for the worker's compensation although it has no longer been remarkable for the company to reinsure one or more of the benefits of an employee in a captive as itemized by Maeda Yoshihiko and Nicos (2010, 47). Even though the captive insures the parent companies risk only which includes the risks of those associated with it, it regularly functions as a normal regular insurer by issuing policies to its shareholders, disbursing claim payments, collecting premiums, preparing balance sheets and income statements and has to comply with the regulatory requirements of the domicile where that places jurisdiction applies.

The difference is that they are not regulated in the same manner as commercial insurance carriers as they are not to insure the general public. This paper gives a critical evaluation of the role of captive insurers in the financial market. Fig 1 Graph indicating a number of captives vs. Time Source: (Jaffee 2009) Captive insurers Captive’ s insurers play a very vital role in the insuring and risk financing market.

There are different types of captive insurers who perform different roles. The cell captive, for instance, is for providing insurance cover for the low-income groups so that, they can offer insurance to their members or the clients. It offers an alternative for obtaining an underwriting where entities are allowed to build up the capital skills. This enables them to become potential insurers in their own right (Giarini, 2000; Sharma 2011). It has also allowed for the formalization of the illegal or informal provision of insurance. This can include the funeral parlours which have opted for the cell captive direction so as to extend their clients with insurance services.

Their main functions may be stated as: Covering several risks of the affiliated companies. They deem as the profit centre in which they are in charge of the management of the companies which they are affiliated. They play a vital role in determining the prices and the decisions that relate to the underwritings investment and management process. They also manage the insured risks.


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