A captive is an insurance company that has been formed to provide insurance for the risks of a company or group. A captive comes in several guises: it may be a wholly-owned company that insures the risks and exposures of its parent or affiliates; or it may be owned by unrelated shareholders and insure the risks of any of those shareholders and, subject to certain limits, the risks of unrelated persons.
Historically, captives have been formed by organisations (or groups of organisations) that found the conventional insurance markets failed to meet their financial needs, especially in terms of price, service, cover and capacity for certain types of risk. Many of the traditional reasons for wanting to form a captive and the related benefits apply equally to the operators of a cruise line.
For example, through use of a captive, a company or group is able to reduce costs while increasing cash flow with the retention of underwriting profits and gains that would otherwise be held by a third-party commercial insurer. Even where a captive reduces its exposure by obtaining reinsurance for its risk, the reinsurance market is a wholesale rather than a retail environment and accordingly a captive should be able to obtain coverage at a reduced rate.