A
alch84
Member
Hello,
It would be great if someone could help me out with a particular part in the SA3 Core Reading I can't quite get my head around.
"If a captive is to insure some of the risks itself, it will either have to be authorised as an insurer in the ordinary way, or it will incur the expense of using an authorised insurer to front its operation. Under a fronting arrangement, the insurer will write the risk but will then "reinsurer" 100% of it to the captive. The risk the insurer runs is that, if the captive defaults, the insurer will be responsible for the liabilities, and because the insurer will charge for taking that risk, it is more expensive for a captive to get a risk funded than to insure it directly."
Since this particular para relates to pros and cons of setting up captives, what does this actually mean?
Cheers
It would be great if someone could help me out with a particular part in the SA3 Core Reading I can't quite get my head around.
"If a captive is to insure some of the risks itself, it will either have to be authorised as an insurer in the ordinary way, or it will incur the expense of using an authorised insurer to front its operation. Under a fronting arrangement, the insurer will write the risk but will then "reinsurer" 100% of it to the captive. The risk the insurer runs is that, if the captive defaults, the insurer will be responsible for the liabilities, and because the insurer will charge for taking that risk, it is more expensive for a captive to get a risk funded than to insure it directly."
Since this particular para relates to pros and cons of setting up captives, what does this actually mean?
Cheers