IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Conditions for Captive Insurer Value: A Monte Carlo Simulation

Listed author(s):
  • Nicos A. Scordis
  • James Barrese
  • Masakazu Yokoyama

We construct two potential scenarios to depict the cash flows from the operation of a captive insurer. We then use Monte Carlo simulation to identify conditions that are sustainable in practice and under which captives have a high probability of creating positive shareholder value. We use realistic value ranges for both a class 1 Bermuda captive and a British Virgin Islands (BVI) general captive. On average, captives have a low probability of generating shareholder value. This outcome is consistent with much of the literature regarding captives. Well-managed captives, however, have an extremely high probability of generating value for their shareholders—even without favorable tax treatment. A well-managed captive is incorporated in the least costly captive jurisdiction during a soft insurance market, but remains dormant until a hard insurance market. The parent self-manages the captive’s operations and uses non-cash assets to satisfy the captive’s regulatory capital requirements while dormant; the captive calls for little reinsurance. Captives of parents with low systematic risk have the highest probability of generating shareholder value even when the captive invests conservatively.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Article provided by Western Risk and Insurance Association in its journal Journal of Insurance Issues.

Volume (Year): 30 (2007)
Issue (Month): 2 ()
Pages: 79-101

in new window

Handle: RePEc:wri:journl:v:30:y:2007:i:2:p:79-101
Contact details of provider:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wri:journl:v:30:y:2007:i:2:p:79-101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (James Barrese)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.