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.
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.