Captives as Risk Retention Mechanisms

Course Description
The first in a series of courses covering the fundamentals of risk finance and captive insurance, this course discusses the concept of “cost of risk” (COR) and how captive insurance can be used to reduce these costs. After completing this course, you will understand what a captive is, how it can be used to reduce the cost of risk, and the different types of captives that are in use today. You’ll also understand the various functions that must be performed by a captive to be effective. Lastly, you will be introduced to the tax and accounting issues that impact the effectiveness of a captive in managing the financial impact of risk. This course is partly based on the best-selling book Captives and the Management of Risk by Kathryn A. Westover.

Learning Objectives
Students who successfully complete this course will be able to:

    • recognize the risk management purpose of using a captive to finance an entity’s risks, identify the elements of captive insurance, and recognize why a captive can insure many types of risks
    • recognize key differences between captives, commercial insurance, and self-insurance plans
    • distinguish among various types of captive insurance companies
    • understand the various ways in which the costs of financing risks through a captive can be lower than the costs of commercial insurance or self-insurance
    • recognize the ways in which captive insurance and other risk financing methods can smooth the financial impact of risk
    • recognize why it is important for a captive to perform underwriting, claims settlement, premium invoicing, and accounting functions similar to those of a commercial insurer
    • identify factors considered in determining whether premiums paid to a captive are tax-deductible

    Prerequisites: An understanding of risk financing principles and how the insurance industry is structured.

    CPE Field of Study

    Management Services

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    International Risk Management Institute, Inc. (IRMI) is the premier provider of risk and insurance continuing education and reference publications, and is considered the ultimate authority by leading insurance practitioners. Written by industry experts, IRMI courses provide the most up-to-date, practical and reliable information possible. 

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