In recent years, based on their ratings, captive insurance companies have consistently outperformed commercial market insurers. This is based on the balance sheet strength, operating performance, and business profiles of captive insurers as compared to their commercial counterparts.

Captives can play a positive role and are able to provide a competitive edge to the organizations using them. Here are how and why.

1. Homogeneous Risks

Whether a single-parent captive or a risk retention group (RRG), a captive insurance company’s insureds will have similar risk profiles and diversity. A single-parent captive insures the parent company, so all its risks belong to one entity. RRGs are made up of like companies with similar missions and business products/services, such as a group of universities. In both cases, the homogeneity of risk will benefit the captive by establishing a certain level of predictability, which helps with the consistency of rates and an unsurprising loss ratio.