Which of the following statements about captive insurance companies are correct?
1. A captive cannot act as a reinsurer.
2. A captive can access reinsurance markets.
3. A captive can sometimes offer greater cover than is available in the insurance market.
4. A captive must be located in the same country as its parent company.
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Correct Answer:
C
According to3, a captive insurance company is ''a wholly owned subsidiary insurer that provides risk mitigation services for its parent company or related entities''.It can act as a reinsurer by accepting risks from other insurers or captives1.It can also access reinsurance markets to transfer some of its own risks1.It can sometimes offer greater cover than is available in the insurance market by tailoring its policies to suit its parent's needs3.It does not have to be located in the same country as its parent company; in fact, many captives are domiciled offshore for tax or regulatory reasons4.
