Question

R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P.'s loss exposures. The company that R.I.P. formed is called a

a) Captive insurer
b) Surplus lines insurer
c) Reinsurance company
d) Excess lines insurer

Answer 1

R.I.P. Company created a captive insurer to self-insure its risks. This type of insurance company is owned by the insureds, offering benefits like potentially lower costs and profits from underwriting.

Step-by-step explanation:

The company that R.I.P. formed is called a captive insurer. A captive insurer is an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. This is in contrast to traditional insurance companies which offer their services to the public at large and must account for a wide range of risk profiles among their insured parties, often resulting in higher premiums for those with lower risks due to the necessary subsidization of higher risk parties.