CB : I think one has to step back and ask what the industry is; the insurance sector is notorious for reinventing terms to describe the same thing. To me, the term micro-captive is synonymous with ultra-low risk ventures, in some cases arguably uninsurable, and tax benefits afforded particularly in certain US states. Personally, I don’t consider it to have earned a full and proper place in the captive vocabulary.
The same may apply to Insurance Linked Securities although they are significantly favoured in Bermuda and Guernsey at the present time. Do they represent a development in the captive sector? On balance yes, because the use of these securities offers a mechanism, through incorporated cells, to facilitate investment directly into insurance risk. The risk, such as it is, is fully collateralised and, ultimately an investor will either receive enhanced returns or lose all capital invested. Such approaches are therefore for sophisticated investors and not individuals seeking greater returns. What does present is an interesting means to introduce capacity on high value specific risks and a convergence of investment and insurance markets to provide delivery.