Corporations or affiliated persons may form a captive insurance company for the following reasons:
- Minimizing costs by eliminating a large percentage of traditional insurance company overheads;
- Access to the lower-cost reinsurance market;
- Retaining profits that would otherwise have been paid to commercial insurers (premiums in excess of amounts repaid to cover losses);
- Earning additional income on funds it controls by choosing lucrative financial instruments in which the company’s premiums may be invested in;
- Reducing risk by choosing insured parties with a low risk profile;
- Have control over the design of the company’s policies, as well as, the ability to repay losses incurred;
- Ability to insure risks which would otherwise be uninsurable.