A captive is a special purpose insurance company formed primarily to underwrite the risks of its parent or affiliated groups. Captives are essentially a form of self-insurance, whereby the insurer is owned or controlled by the insured, and they are typically established to meet the risk management needs of the owners or members. In the past, captives were almost exclusively used by only the largest companies, but due to the various types of innovative captive structures, participating in or forming a captive is something that a wide variety of businesses may consider. Once established, captives can operate like a typical insurance carrier or they may be customized to fit the clients unique situation.
The captive market has experienced tremendous growth in recent decades, and many variations continue to flourish as companies come up with more sophisticated ways to use captives. Captives can be domiciled and licensed in both the U.S. and offshore, with the number of competitive domiciles growing each year. The formation of a captive insurance company can be a lengthy process with feasibility studies, financial projections, determining domicile, and preparing an application for an insurance license. Due to the complexity, it is paramount to involve a qualified insurance manager, particularly during the formative stages.
The vast majority of captives insure only the risk of its parent (single-parent captives). There are, however, many different types of captives. INSURICA’s Captive Practice is the resource to help you determine which captive arrangement is best suited to your situation.