Captive Insurance

Captive Insurance Programs

A captive is a bona fide insurance or reinsurance company. Its business is primarily supplied by and controlled by its owners, which are also normally the principal insureds. These owners/insureds participate in controlling the underwriting, claims and investment decisions of the insurance company.

Types of Captives

Several different types of captives exist:

Single parent or group
Direct writing or fronted
Onshore or offshore
Agency captive
Risk-retention group
Property/casualty only or life/benefits only (sometimes a mix of the two)
Writers of related business or some unrelated business
Primary or excess layer captive
Stock, mutual or reciprocal
Rent-a-captive, cell captive, or sponsored captive.

Entities

Not all entities called “captives” are the same. Some are not considered captives in the strict sense of the term, including:

Agency captives:
Sometimes called producer-owned reinsurance companies (PORC), these captives are frequently offered by insurance companies to keep their better agency clients or are formed by insurance agents and industry associations to align the financial interests of their groups with insurers. The owners and the insureds are not the same. The insureds may not even know that a PORC reinsures their risk.
Special-purpose or transformer vehicles:
These are offshore entities that transform insurance exposures such as catastrophes into marketable securities such as investment-grade bonds. These vehicles use the capital markets, not the insurance markets, to finance risk.