Which of the following statements about the use of a captive insurance company by a parent firm is true?
A)The captive may not write outside,non-parent company,business.
B)Captives are not permitted to use reinsurance,so any business insured by the captive stays with the captive.
C)The captive may be used to insure loss exposures that the parent firm is finding difficult to insure with private insurers.
D)Business placed with the captive is always considered retained risk and is never considered transferred risk.

Question

Quizplus · Accepted Answer

Captive insurance companies can be used by parent firms to insure loss exposures that private insurers may be unwilling or unable to insure. This allows the parent firm to have more control over their insurance program and potentially save money on premiums. However, captives are typically limited to insuring only the risks of their parent and affiliated companies, so they cannot write outside, non-parent company business. Captives can also use reinsurance, which transfers risk from the captive to a third-party reinsurer, allowing the captive to reduce its exposure to losses. Therefore, statement A and B are incorrect. Finally, business placed with a captive can be considered retained or transferred risk depending on whether or not the captive uses reinsurance, so statement D is also incorrect.

Which of the Following Statements About the Use of a Captive