Even with rock-bottom insurance prices, captives still find a reason to grow. Health-care providers, banks and mortgage lenders are just a few of the entities that have turned to captives. The alternative market grew by 151 captive insurance companies last year, despite a soft market that threatened their formation. Often, new captives are formed to allow insureds to manage their own investment income while avoiding the possibility of future price hikes or coverage loss, said John Lochner, a Tillinghast-Towers Perrin consultant. Captives can be used to strengthen business relationships.
Insurance is a valuable commodity.
Adding third-party business to a captive also means there will be enough unaffiliated business for the parent to deduct the premiums paid to the captive from its taxes. Mortgage Insurance Opportunities Banks and mortgage lenders have been forming captives for private mortgage insurance risk. Half of the 40 captives formed in Vermont last year were established for this purpose, Murray said. Aon Insurance Managers was involved in five of those start-ups. The insurance protects the lender against the buyer defaulting on the mortgage.