The concept of the captive insurance company is not new at all. Many of the insurance companies formed during the 18th and 19th centuries in the UK, and later in the United States, would be regarded as captives if they were formed today. The growth in domestic captives was a feature of the insurance market in the early part of this century but it was not until the 1960s that the benefits to be gained by incorporating offshore captives were widely recognized. Most developed countries enacted legislation to regulate insurance business but successive amendments often resulted in simple laws becoming complex statutes that were difficult to understand. With legislation being largely designed to protect the consumer, corporations sought alternative methods of securing insurance for their own risks. It was soon recognized that by forming offshore subsidiaries, companies could arrange insurance coverage appropriate to their needs and very often at a reduced cost. There was also the added benefit to the subsidiary of being able to maintain reserves and accumulate earnings in a low or no tax area which was also relatively free of over-restrictive regulation. The offshore captive was born.
The offshore insurance market developed in a number of small territories that were perceived to be politically stable and whose laws were conducive to the conduct of the insurance business. These territories also boasted relatively good communications, financial and legal services, low taxation and were free of monetary controls. The continuing increase in the number of captives being formed is a reflection of their general acceptance globally and an appreciation of their being a long term financial tool with significant advantages for many organizations.
In the last 20 to 30 years there has been phenomenal growth in the number of captive insurance companies, especially the last decade. Today there .are well over 5,000 captives worldwide writing more than $20bn in premium. These companies have capital and surplus estimated at over $50bn.