Economics at your fingertips  

Optimal risk financing in large corporations through insurance captives

Pierre Picard and Jean Pinquet ()

Working Papers from HAL

Abstract: A captive is an insurance or reinsurance company established by a parent group to finance its own risks. Captives mix internal risk pooling between the business units of the parent group and risk transfer toward the reinsurance market. We analyze captives from an optimal insurance contract perspective. The paper considers the vertical contractual chain that links firstly business units to insurance captives or to "fronters" through insurance contracts, secondly fronters to reinsurance captives through the cession of risks and thirdly insurance or reinsurance captives to reinsurers through cessions or retrocessions. In particular, the risk cession by fronters to a reinsurance captive trades o¤ the benefits derived from recouped premiums and from the risk sharing advantage of an "umbrella reinsurance policy", against the risks that result from the captive liabilities. The optimal captive scheme depends on the price of coverage in insurance and reinsurance markets and on the parent group's corporate capital. Since these variables fluctuate across time, the analysis developed in this paper corroborates the intertemporal variability of captives activity.

Keywords: self-insurance; captive; reinsurance; risk management (search for similar items in EconPapers)
Date: 2011-02-22
Note: View the original document on HAL open archive server:
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Optimal Risk Financing in Large Corporations through Insurance Captives (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2019-03-31
Handle: RePEc:hal:wpaper:hal-00567263