All of the following statements about captive insurers are true EXCEPT
A)They may act as a profit center by insuring parties other than the parent company.
B)They provide a way to obtain types of insurance that may be unavailable from commercial insurers.
C)They increase the volatility of the parent company's earnings.
D)They make it easier for a firm to have access to reinsurance.

Question

Quizplus · Accepted Answer

Captive insurers typically operate as a cost-saving measure for the parent company by providing insurance coverage at a lower cost. They may also offer coverage for risks that are difficult to insure through commercial insurers. Additionally, captive insurers can provide a reliable source of reinsurance for the parent company's risks. However, they do not increase the volatility of the parent company's earnings; in fact, they may help to stabilize earnings by providing a consistent source of insurance and reinsurance coverage.

All of the Following Statements About Captive Insurers Are True