How to make the most of the cash in a captive. (captive insurance companies) (Alternative Market Report: Captives)

National Underwriter Property & Casualty-Risk & Benefits Management, March, 1993

If the 1980s were the Decade of Debt, then the 1990s mark a return of Cash as King. Companies are trying to maximize their use of cash. One area risk managers can check for the best cash management is their captives. Like traditional insurance companies, captives are finding their yields on investments falling along with the prime rate.

Captives usually keep a higher proportion of their investments in cash and cash-equivalents, meaning that falling rates hurt them proportionately more. On the other side, the parent corporation can earn higher yields on its working capital. Until the cash is needed to pay losses, the parent company may be the best place to keep the cash--especially with short-term investment yields languishing at 3 percent. Having the...

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