The captive option is only one among many non-traditional ways to finance risk transfer. Capitalization of the Captive . As mentioned above, you will have to commit long term capital to form a captive. This capital can be in the form of cash, letter of credit or other approved means. There are certain overhead costs associated with the captive option .
Conventional pricing can provide competitive premium levels .
The captive's pricing should more truly reflect the underlying risk of the insured, and consequently in times of extremely soft markets, the captive's price may be slightly higher than the conventional underwriter, thereby causing friction. Pricing levels generally stabilize over a specified period of time, making the captive a stable and viable option. Additionally, you may have the flexibility to engage in certain strategies, such as grossing up premiums to capture ceded retention credits.