Captive insurance providers are required to hold minimum capital reserves in order to be permitted to write insurance. The Captive traditionally provides a Letter of Credit such that the Regulator is assured that the reserves exist and are available to the Regulator on demand. Regulators are restrained by regulatory policy and the courts. Their access to the funds generally coincides with extreme cases such as insolvency.
The Captive8 Reserves system modernizes this element of the insurance business process. Lenders contribute funds to reserves held in smart contracts in return for interest paid by the Captive. A blockchain solution is more administratively efficient than the traditional process and unlocks a large and growing pool of capital and potential investors. The offering presents a blockchain-based low-risk investment opportunity distinguished by the supervision of an industry regulator and relative simplicity when compared to competing DeFi products.
In this design, Smart Contracts stand as a substitute for the traditional Letter of Credit and control the distribution of the funds.