From the front page of today’s New York Times: an article about how some insurance companies are themselves using captives as reinsurance vehicles. Of course, this is far from the core use of captives which, generally speaking, are used as genuine insurance affiliates set up to provide insurance coverage on the basis of premiums that are calculated according to arm’s-length actuarial principles and reserves that are set by regulators in accordance with generally applicable insurance principles. Whether the use of captives by insurance companies represents an abuse is a legitimate question — although far removed from what my colleagues and I do! I hope, though, that the debate and its upshot does not serve as a drag on the clearly proper use of captives as a regulated self-insurance mechanism.
