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SPECIFIC TYPES OF COMPANIES:
CAPTIVE INSURANCE COMPANIES
- a captive insurance company is wholly owned or controlled
subsidiary company formed by a non-insurance parent for the purpose of participating in
the risks of the parent enterprise or its group. The risks assured can be those that can
be insured in the normal way or those for which insurance coverage is difficult to obtain
or highly costly.
Captive insurance companies are regulated by the provisions
of the Insurance Companies Law and may be registered in Cyprus as offshore companies under
certain provisions and requirements imposed by the Central Bank.
- in addition to the usual conditions imposed by the Central
Bank to all offshore companies the Captive Insurance Companies must also comply with the
Insurance Companies Law and in particular with the following:
- the minimum paid up share capital must be
CYP 10,000.00
- full compliance with the provisions of the Insurance Law as
to the filing of the accounts and other relevant documents
- proof of no financing from local sources
- adequate cover to the satisfaction of the Superintendent of
Insurance regarding claims from third parties, that these claims shall rank in priority to
the claims of any other company in the group.
- all local expenses incurred must be covered by funds to be
imported from abroad. The captive insurance company shall advise the Central Bank annually
of all funds imported into Cyprus from abroad.
- besides the usual benefits and advantages available to
offshore companies, Captive insurance companies may gain the benefit of obtaining
insurance at lesser net cost and have a flexibility which can be related to all aspects of
the sponsor’s risk management program.
Other reasons for setting up a captive are:
- a corporation may believe that the commercial market is
charging too much for a certain line of coverage when compared to the loss experience.
Establishing a captive to underwrite this business could substantially reduce costs.
- Just as in a homeowners policy, corporations are carrying
large and larger deductables on their policies. The loses within these deductibles,
however do not go away and have to be provided for. A captive is an ideal way to do this.
- Some lines of coverage, such as workers’ compensation,
are mandated as are the premium levels. A corporation with good loss experience in these
lines may with to write them in a captive.
- Substantial investment income can be generated in a captive
by holding onto the premiums sums until the losses are settled. In lines such as medical
malpractice some losses can take 15-20 years to settle which means considerable interest
can be generated on the premiums.
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