History of Captives
Captives are sharing arrangements amongst other entities for Property, Liability, Workers Comp, Health, and any other type of insurable risk.
Captives are believed to have started in the 1500's (or sooner) in Europe when insurance started becoming more sophisticated. Many areas of Europe benefited from the friendly societies that collected money in a shared risk setting in order to pay for medical expenses and funerals.
Following that time period in the late 1600's when London's value to the world of trading demanded a rapid increase of merchant ships to import/export goods to/from other countries. With this came a very high demand for insurance to cover the cargo and merchant traders. Captives were formed to combine the risk among the ship owners who would meet in Lloyd's coffee shop to write their name and cargo value on a board to combine to the shared risk.
In New England during the 1800's textile mills formed a shared risk group due to the very high fire insurance rates and in the 1900's captives were formed due to insurance carriers refusing to cover certain important risks for companies.
In 1953 Frederic M. Reiss (1924-1993) founded a captive, Steel Insurance Company of America, which was created for Ohio Steel Company. Reiss coined the term "captive" having to do with the "captive" mines transporting ore to the company mills.
In 1958 Weiss set up American Risk Management in Bermuda, the first domiciled location for captives. Reiss had 3 keys to his success:
- Captive management in Bermuda offered fronting, administration, governance, reinsurance, and brokerage.
- Property loss-control engineering was in-house, with Factory Mutual loss-control standards (or better) and maximum foreseeable loss estimates.
- The reinsurance capacity included captives as reinsurers, funneled through Hopewell, a pooling facility.
In 1980 there were over 1,000 captives globally to 7,000 captives in 2021, with Bermuda being the single largest jurisdiction. Today over 90% of Fortune 500 companies have established captives and small to medium size business owners are starting to realize the benefits of utilizing existing captives to help add to the bottom line.