These products involve a transaction between an insurer and insured in which the insured does not actually transfer much or any risk of loss per occurrence to the insurer. The insured pays a premium that constitutes a pool of funds for the insurer to use to pay losses. If losses are lower than the premium, the insurer returns most or all of the premium to the insured. If the losses exceed the premium, the insured pays additional premium to the insurer.


  • Cash flow prior to claim payment accrues to insured, not insurer.
  • Allows insured to comply with insurance requirements.
  • Provides insured with means to transfer liabilities from balance sheet.


  • Expensive transaction.
  • Few tax benefits available.

How it works:

The insurer provides a standard insurance policy, but modifies the limits and deductibles in a specific way. The total limit and retention, on a per-occurrence and aggregate basis, are a function of the total premium. The insurer computes total premium as the losses that will be paid, discounted for investment income. The insurer issues the policy and segregates the premium, net of fees, into a dedicated account for the insured. The account accrues interest which belongs to the insured, net of an insurer fee. If at the end of the policy period funds remain in the account, the insured may claim them. If at some point during the policy period losses exhaust the account, the insured either pays additional premium, or the transaction ends.


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2003 Contact Information:

Chad Kunkel
Gallagher Captive Services, Inc.
Two Pierce Place
Itasca, IL 60143
630-285-4000 (fax)
[email protected]